By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
One of the stereotypical American traits is impatience. I want it, and I want it now! Sound familiar? This can be damaging from a financial standpoint…..not only from a spending perspective, but also from a planning perspective.
Financial planning is a process, or at least it should be. Some planning firms (mostly sales driven firms) operate as if the financial planning is event oriented. This means the planning is usually completed with the presentation of a hefty multi-page, disorienting, chart and graph filled report. While these plans are usually well done, they are missing one key component: the fact that life happens. A plan put into action today is usually obsolete tomorrow.
Life is constantly changing, and so should your financial planning. Every new job, home or car purchase, or a birth of a child can dramatically change a financial plan. Even smaller expenditures can throw a wrench in the mix. Ever had to pony up for a new HVAC unit? The ebb and flow of life can certainly be beautiful, but financial give and take is not conducive to a static financial plan.
As a comprehensive planner, I love the fact that my clients’ lives keep me on my toes. I love the challenges associated with the first time entrepreneur. Financial plans for entrepreneurs are always changing. I also love the challenges of a busy family with kids starting private school. Today’s education costs can certainly create a need for dynamic planning. The list of challenges goes on and on.
Developing a financial plan, implementing the plan, and then letting it go is dangerous. Financial planning is a process. Financial planning should be flexible. This is why I love my retainer business model. This allows me to assist my clients as their lives ebb and flow. Is your financial plan dynamic? Is it ever changing? The flexibility needs to come from your planner. If you don’t have the ability to be flexible, it may be time to search for a new advisor. Remember, life will not conform to your financial plan…..your plan needs to conform to life! Does yours?
December 27, 2010
December 23, 2010
10 Financial Tips for Newlyweds
By Judy Stewart, CFP®, MBA, EA
Carlsbad, CA
http://www.stewart-financial.com/
My dear niece is getting married in March, 2011, to a wonderful young man. As I have been thinking of this wedding and the two wonderful people that will be starting a life together, I cannot help but think of the financial advice that I can offer them so they can have a prosperous life together.
Here are the top ten ways to keep financially sane, today and for the rest of your life together:
Carlsbad, CA
http://www.stewart-financial.com/
My dear niece is getting married in March, 2011, to a wonderful young man. As I have been thinking of this wedding and the two wonderful people that will be starting a life together, I cannot help but think of the financial advice that I can offer them so they can have a prosperous life together.
Here are the top ten ways to keep financially sane, today and for the rest of your life together:
- The power of compounding interest is truly a miraculous thing but it takes time. Start saving now when you have nothing but time ahead of you and your money will grow exponentially.
- Always save 10% of your income—each and every year—no exceptions.
- Go slow on large purchases and always consult with each other. Set a dollar limit that each can spend on his/her own.
- Avoid credit card debt like the plague. Only charge what you can pay off when you get your monthly statement.
- Have money set aside for emergencies and believe me, they will happen. A rule of thumb is approximately 3 months of your monthly earnings.
- Be generous. Sit down together and decide what annual amounts you want to give your church or charities so that others can be blessed.
- Contribute to your employer retirement plans so that you always get the match. If your employer has no plan or no match, consider contributing to an IRA or a Roth IRA. Remember… compounding interest is phenomenal.
- Buy term life insurance only. Check with your employer about group term life, it is almost always the cheapest way to go.
- If you are having trouble with more expenses than income, seriously look at cutting out the extras such as expensive cell phone plans, cable TV, eating out etc… Taking lunches to work saves a lot of money!
December 19, 2010
Why Vision Matters!
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
Many of us business owners have spent time in thought contemplating business goals, but, while goal setting is certainly an important part of a successful business venture, vision is the glue needed to adhere our goals to the values in our lives. Goals are mile stones, and vision is the guiding purpose of our goals. A business without goals may be at risk of failure, but a goal without vision can destroy happiness. For example, simply setting a goal to find a job is not enough. Vision is needed to establish the purpose of employment.
So how does vision help my business? One needs vision to develop a proper plan, so, again, a plan without vision may not capture the values of the business owner. Let’s explore a little deeper. Let’s say a business owner has a goal to generate $100k in revenue. Is that enough? Maybe….but probably not. What is the vision of the owner? Does the goal incorporate this vision? Maybe the $100k goal is obtainable but at the expense of the owner’s family due to travel for business. A plan that includes vision can help ensure that a business will stay connected to the values of the owner and optimize a great work-life balance.
The best place to start is by asking yourself about the continuity between your business life and your personal life. Set the overall vision of your business. How does your work life balance look? Does your business involve employees? If so, how many and how would you like to treat them? These questions can help set the stage for vision creation. Once the vision is created the goals should be set and measured against the vision to make sure they are congruent.
Large and small companies write vision statements to guide the decision making process. If a decision is in opposition to the vision statement, the decision should be reconsidered. For example, a business owner has the following vision statement….To create the best widgets in the most ethical manner. So, if the business owner can outsource the widget production to a factory overseas with deplorable conditions but increase profits 10%, the decision flys directly in opposition to the vision statement.
Goals and vision work hand in glove to create a successful business, but one without the other can create a crack in the path to happiness. When creating a business plan don’t forget to include a vision statement. Do you have a vision statement? What are you doing with your business to create a great work-life balance?
Nashville, TN
http://www.vhfinancialmanagement.com/
Many of us business owners have spent time in thought contemplating business goals, but, while goal setting is certainly an important part of a successful business venture, vision is the glue needed to adhere our goals to the values in our lives. Goals are mile stones, and vision is the guiding purpose of our goals. A business without goals may be at risk of failure, but a goal without vision can destroy happiness. For example, simply setting a goal to find a job is not enough. Vision is needed to establish the purpose of employment.
So how does vision help my business? One needs vision to develop a proper plan, so, again, a plan without vision may not capture the values of the business owner. Let’s explore a little deeper. Let’s say a business owner has a goal to generate $100k in revenue. Is that enough? Maybe….but probably not. What is the vision of the owner? Does the goal incorporate this vision? Maybe the $100k goal is obtainable but at the expense of the owner’s family due to travel for business. A plan that includes vision can help ensure that a business will stay connected to the values of the owner and optimize a great work-life balance.
The best place to start is by asking yourself about the continuity between your business life and your personal life. Set the overall vision of your business. How does your work life balance look? Does your business involve employees? If so, how many and how would you like to treat them? These questions can help set the stage for vision creation. Once the vision is created the goals should be set and measured against the vision to make sure they are congruent.
Large and small companies write vision statements to guide the decision making process. If a decision is in opposition to the vision statement, the decision should be reconsidered. For example, a business owner has the following vision statement….To create the best widgets in the most ethical manner. So, if the business owner can outsource the widget production to a factory overseas with deplorable conditions but increase profits 10%, the decision flys directly in opposition to the vision statement.
Goals and vision work hand in glove to create a successful business, but one without the other can create a crack in the path to happiness. When creating a business plan don’t forget to include a vision statement. Do you have a vision statement? What are you doing with your business to create a great work-life balance?
December 11, 2010
Year End Financial Planning Tips
By Jane Young, CFP®, EA
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
Roth Conversion
The income limitations on converting a traditional IRA to a Roth IRA have been eliminated and taxes due on a Roth conversion, processed in 2010, can be paid in 2011 and 2012.
Required Minimum Distribution
A required minimum distribution on your IRA and 401k/403b is required every year once you attain 70 ½.
Maximize your retirement contributions
Be sure to maximize your retirement plan contributions for 2010. Below are the maximum contributions for your 401k and IRA contributions for 2010. You have until April 15th to contribute to your IRA.
401k - $16,500 plus a $5,500 catch-up provision if you are over 50
IRA - $5,000 plus a $1,000 catch-up provision if you are over 50 (income limits apply)
Simple - $11,500 plus a $2,500 catch-up provision if you are over 50
Adjust retirement contributions for 2011
There is no change to 401k and IRA contribution limits between 2010 and 2011. However, if you have turned 50 you can make a catch-up contribution. A change in your income may also impact your ability to contribute to an IRA.
Harvest Tax Losses
If you have been thinking about selling some poor performing stocks or mutual funds, do so before the end of the year to take advantage of tax losses in 2010. However, if capital gains rates increase in 2011 it may be more advantageous to offset gains in 2011.
Charity Contributions
Go through your closets and garage before the end of the year and donate any unwanted items to get a nice deduction on your tax return. When you drop off your items be sure to get a receipt. When making a charitable contribution, consider donating appreciated stock rather than cash.
Take advantage of the annual gift allowance
In 2010 you can gift up to $13,000 per person without paying gift tax or impacting your estate tax exemption.
Make 529 Contributions
Contributions made to the Colorado 529 plan are deductible on your state tax return. Money can be contributed into the Colorado 529 plan for tuition that is payable in 2011.
Review your expenses and draft a new budget
Everyone should review their expenses and revise their budget at least once a year. December is a good time of year to review historical spending habits and make adjustments to your budget for the coming year. It is difficult to establish saving goals without a good understanding of what is available after your non-discretionary expenses.
Set financial goals for 2011
I recommend setting new personal and financial goals at the beginning of every year. Think of it as personal strategic planning. Set some long term goals for 3-5 years then identify some action plans for the next twelve months.
Adjust tax withholdings for 2011
Adjust your tax withholdings or estimated taxes for anticipated changes in income and deductions in 2011.
Organize 2010 tax documents
Year end is a good time to create a folder for all of the 2010 tax documents you will be receiving and to start organizing your expenses and receipts. You will have everything thing in one place when it comes time to complete your tax return.
Make adjustments for changes in family circumstances – birth, death, marriage, dependents, and retirement
Major changes in your life circumstances may result in numerous changes in your financial situation. For example a birth, marriage, or death will probably necessitate a change in your will and beneficiary designations. It also may impact your income tax withholdings. The birth of a child may result in significant tax benefits. With the birth of a child you also may want to consider starting a college fund and a change in life or disability insurance.
Spend FSA accounts
With many companies, flexible savings accounts cannot be carried over into the next year so be sure to spend the money in your FSA account this year, before you lose it.
Consider the impact of possible changes in the tax law
If the Bush tax cuts are not extended, there is a possibility that the capital gains rate will increase from 15% to 20%, that tax rates will increase, and that some tax deductions will disappear. These possibilities need to be considered in making your year end financial decisions.
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
Roth Conversion
The income limitations on converting a traditional IRA to a Roth IRA have been eliminated and taxes due on a Roth conversion, processed in 2010, can be paid in 2011 and 2012.
Required Minimum Distribution
A required minimum distribution on your IRA and 401k/403b is required every year once you attain 70 ½.
Maximize your retirement contributions
Be sure to maximize your retirement plan contributions for 2010. Below are the maximum contributions for your 401k and IRA contributions for 2010. You have until April 15th to contribute to your IRA.
401k - $16,500 plus a $5,500 catch-up provision if you are over 50
IRA - $5,000 plus a $1,000 catch-up provision if you are over 50 (income limits apply)
Simple - $11,500 plus a $2,500 catch-up provision if you are over 50
Adjust retirement contributions for 2011
There is no change to 401k and IRA contribution limits between 2010 and 2011. However, if you have turned 50 you can make a catch-up contribution. A change in your income may also impact your ability to contribute to an IRA.
Harvest Tax Losses
If you have been thinking about selling some poor performing stocks or mutual funds, do so before the end of the year to take advantage of tax losses in 2010. However, if capital gains rates increase in 2011 it may be more advantageous to offset gains in 2011.
Charity Contributions
Go through your closets and garage before the end of the year and donate any unwanted items to get a nice deduction on your tax return. When you drop off your items be sure to get a receipt. When making a charitable contribution, consider donating appreciated stock rather than cash.
Take advantage of the annual gift allowance
In 2010 you can gift up to $13,000 per person without paying gift tax or impacting your estate tax exemption.
Make 529 Contributions
Contributions made to the Colorado 529 plan are deductible on your state tax return. Money can be contributed into the Colorado 529 plan for tuition that is payable in 2011.
Review your expenses and draft a new budget
Everyone should review their expenses and revise their budget at least once a year. December is a good time of year to review historical spending habits and make adjustments to your budget for the coming year. It is difficult to establish saving goals without a good understanding of what is available after your non-discretionary expenses.
Set financial goals for 2011
I recommend setting new personal and financial goals at the beginning of every year. Think of it as personal strategic planning. Set some long term goals for 3-5 years then identify some action plans for the next twelve months.
Adjust tax withholdings for 2011
Adjust your tax withholdings or estimated taxes for anticipated changes in income and deductions in 2011.
Organize 2010 tax documents
Year end is a good time to create a folder for all of the 2010 tax documents you will be receiving and to start organizing your expenses and receipts. You will have everything thing in one place when it comes time to complete your tax return.
Make adjustments for changes in family circumstances – birth, death, marriage, dependents, and retirement
Major changes in your life circumstances may result in numerous changes in your financial situation. For example a birth, marriage, or death will probably necessitate a change in your will and beneficiary designations. It also may impact your income tax withholdings. The birth of a child may result in significant tax benefits. With the birth of a child you also may want to consider starting a college fund and a change in life or disability insurance.
Spend FSA accounts
With many companies, flexible savings accounts cannot be carried over into the next year so be sure to spend the money in your FSA account this year, before you lose it.
Consider the impact of possible changes in the tax law
If the Bush tax cuts are not extended, there is a possibility that the capital gains rate will increase from 15% to 20%, that tax rates will increase, and that some tax deductions will disappear. These possibilities need to be considered in making your year end financial decisions.
December 7, 2010
Are You Asking the Right Financial Questions to Develop Wealth?
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
Recently, a prospective client walked into my office concerned about his portfolio and was seeking investment advice. The interesting fact was the investment question was not the right question. Investments were not the issue, and this is not uncommon.
While investments are the easy target for financial blame or success for that matter, investments are usually not the catalyst to wealth. Real wealth is created by managing financial elements that can be controlled, and the stock market certainly cannot be controlled. It’s more important to ask questions that will assist in wealth creation.
What questions should you be asking yourself?
1. Are you spending less than you earn?
This is the starting point for all looking to create wealth. If expenditures exceed income, financial success will not be attainable. Actually, it’s quite simple: most financial problems can be solved in one or two ways….earn more or spend less. Living within your means is the first step to financial freedom.
2. How much are you savings?
Spending less then you earn may not be enough. A good target is to save at least 10% of earnings. This financial tenet is the foundational footing in which all financial growth is built upon.
3. How much are you paying in taxes?
Taxes are the single largest recurring expense that most of us will have from now until the day we die…..and maybe even after death as well. While taxes are a requirement, maximizing tax savings strategies are the responsibility of the taxpayer, and most taxpayers simply fail to utilize available strategies. Whether the cause is laziness or a lack of tax knowledge, the end result of anemic tax management can cost thousands of dollars.
4. Do you have consumer debt?
Not all debt is bad, but consumer debt (credit card, car loans, revolving debt from furniture stores…etc) is detrimental to financial success. Most often, debt is incurred because of spending issues….spending more than you earn. Elimination of consumer debt is paramount for financial stability.
While poor investment returns may get the blame for the lack of financial growth, the usual suspects to poor financial growth can be attributed more often to one of the four areas above and not investment returns. Investments are an integral piece of the financial planning pie, but investments are not the holy grail to financial bliss.
Control the areas centered around the four questions above and then worry about investments. Spend less than you earn, save at least 10% of your earnings, reduce taxes, and eliminate consumer debt, and financial progress is just around the corner.
Can you honestly and successfully answer these four questions? Are you worried about investments when investments aren’t the true thorn in your side?
Nashville, TN
http://www.vhfinancialmanagement.com/
Recently, a prospective client walked into my office concerned about his portfolio and was seeking investment advice. The interesting fact was the investment question was not the right question. Investments were not the issue, and this is not uncommon.
While investments are the easy target for financial blame or success for that matter, investments are usually not the catalyst to wealth. Real wealth is created by managing financial elements that can be controlled, and the stock market certainly cannot be controlled. It’s more important to ask questions that will assist in wealth creation.
What questions should you be asking yourself?
1. Are you spending less than you earn?
This is the starting point for all looking to create wealth. If expenditures exceed income, financial success will not be attainable. Actually, it’s quite simple: most financial problems can be solved in one or two ways….earn more or spend less. Living within your means is the first step to financial freedom.
2. How much are you savings?
Spending less then you earn may not be enough. A good target is to save at least 10% of earnings. This financial tenet is the foundational footing in which all financial growth is built upon.
3. How much are you paying in taxes?
Taxes are the single largest recurring expense that most of us will have from now until the day we die…..and maybe even after death as well. While taxes are a requirement, maximizing tax savings strategies are the responsibility of the taxpayer, and most taxpayers simply fail to utilize available strategies. Whether the cause is laziness or a lack of tax knowledge, the end result of anemic tax management can cost thousands of dollars.
4. Do you have consumer debt?
Not all debt is bad, but consumer debt (credit card, car loans, revolving debt from furniture stores…etc) is detrimental to financial success. Most often, debt is incurred because of spending issues….spending more than you earn. Elimination of consumer debt is paramount for financial stability.
While poor investment returns may get the blame for the lack of financial growth, the usual suspects to poor financial growth can be attributed more often to one of the four areas above and not investment returns. Investments are an integral piece of the financial planning pie, but investments are not the holy grail to financial bliss.
Control the areas centered around the four questions above and then worry about investments. Spend less than you earn, save at least 10% of your earnings, reduce taxes, and eliminate consumer debt, and financial progress is just around the corner.
Can you honestly and successfully answer these four questions? Are you worried about investments when investments aren’t the true thorn in your side?
December 3, 2010
To Roth or Not to Roth
By Linda Leitz, CFP®, EA
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
Congress lifted the income ceiling in 2010 for conversion of a traditional IRA to a Roth IRA. So lots of people are wondering if a conversion is a good idea. The answer is – as it so often the case – that it depends.
What’s the difference between the two types of IRAs? Contributions to a traditional IRA might be partially or fully tax deductable, so this type of retirement account has some or all of the balance subject to tax when the money is withdrawn. Also, with a traditional IRA, you are required to withdraw a portion of the account every year beginning when you turn 70½ and those withdrawals are taxable. Contributions to a Roth IRA are never tax deductible, but withdrawals aren’t subject to tax. Also, you are never required to withdraw the money from a Roth. Both types of IRAs have a 10% penalty if you take money out prior to your age 59½, with a few exceptions.
Converting from traditional IRA to Roth means that the taxes need to be paid on the taxable portion of the traditional IRA, which sometimes means the entire amount. During 2010, that converted amount can be taxed partially in 2010 and partially in 2011. But unless you know you’re going to drop into a lower bracket in 2011 due to a life event – retirement, quitting a job to go to school full time, taking a big pay cut – spreading the tax over two years probably doesn’t make sense. We know the tax brackets in effect for 2010 and it’s likely that they’ll be higher in 2011.
It’s important to remember that you don’t have to convert your entire IRA. You could decide to convert just part of it. So if the top IRS tax bracket you are subject to is 28%, you could convert enough of your IRA to a Roth that you wouldn’t have income pushed into the next tax bracket and leave the rest in your traditional IRA in place. That Roth balance will now be available in your retirement years to be withdrawn only if you want to withdraw it and will be tax free if you do use it.
So who is a Roth conversion most appealing to? If you are in a lower tax bracket this year than normal, you might want to consider it. Maybe you just retired or you’ve been laid off or had a pay cut in your household. If you are ten or more years away from retirement and don’t expect your tax bracket to go down much when you leave the workforce, that’s another favorable thing. So if you’ll have a pension that will pay you when you stop working or your IRA is really large, you might want to look at a conversion. Ironically, the people who haven’t been eligible this year – high income earners – often have the hardest time justifying a conversion. I recommend doing a Roth conversion prior to age 59½ only if you have enough cash outside the IRA to pay the tax. So paying between 28% to 35% to the IRS (on top of any state income tax) to move into a tax free instrument is a difficult pill to swallow at just about any time. But to do it during a recession when it’s especially important to keep lots of funds liquid in case of a loss of income or another financial emergency is too aggressive for some of these folks. For people already in retirement, a low stock market can be a good time to do the conversion. If you account values are down, moving some money to the Roth will allow that money to grow tax free. Assuming growth on the account of 8%, it takes about three to five years to get back what was paid in taxes. From then on, all the growth I the Roth puts you ahead in the tax game on your retirement funds.
Still undecided? Make an appointment with a financial planner to see if your particular situation could make sense for a conversion. Your situation is unique and one of the factors that can’t be quantified is whether or not you’re comfortable with the transaction.
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
Congress lifted the income ceiling in 2010 for conversion of a traditional IRA to a Roth IRA. So lots of people are wondering if a conversion is a good idea. The answer is – as it so often the case – that it depends.
What’s the difference between the two types of IRAs? Contributions to a traditional IRA might be partially or fully tax deductable, so this type of retirement account has some or all of the balance subject to tax when the money is withdrawn. Also, with a traditional IRA, you are required to withdraw a portion of the account every year beginning when you turn 70½ and those withdrawals are taxable. Contributions to a Roth IRA are never tax deductible, but withdrawals aren’t subject to tax. Also, you are never required to withdraw the money from a Roth. Both types of IRAs have a 10% penalty if you take money out prior to your age 59½, with a few exceptions.
Converting from traditional IRA to Roth means that the taxes need to be paid on the taxable portion of the traditional IRA, which sometimes means the entire amount. During 2010, that converted amount can be taxed partially in 2010 and partially in 2011. But unless you know you’re going to drop into a lower bracket in 2011 due to a life event – retirement, quitting a job to go to school full time, taking a big pay cut – spreading the tax over two years probably doesn’t make sense. We know the tax brackets in effect for 2010 and it’s likely that they’ll be higher in 2011.
It’s important to remember that you don’t have to convert your entire IRA. You could decide to convert just part of it. So if the top IRS tax bracket you are subject to is 28%, you could convert enough of your IRA to a Roth that you wouldn’t have income pushed into the next tax bracket and leave the rest in your traditional IRA in place. That Roth balance will now be available in your retirement years to be withdrawn only if you want to withdraw it and will be tax free if you do use it.
So who is a Roth conversion most appealing to? If you are in a lower tax bracket this year than normal, you might want to consider it. Maybe you just retired or you’ve been laid off or had a pay cut in your household. If you are ten or more years away from retirement and don’t expect your tax bracket to go down much when you leave the workforce, that’s another favorable thing. So if you’ll have a pension that will pay you when you stop working or your IRA is really large, you might want to look at a conversion. Ironically, the people who haven’t been eligible this year – high income earners – often have the hardest time justifying a conversion. I recommend doing a Roth conversion prior to age 59½ only if you have enough cash outside the IRA to pay the tax. So paying between 28% to 35% to the IRS (on top of any state income tax) to move into a tax free instrument is a difficult pill to swallow at just about any time. But to do it during a recession when it’s especially important to keep lots of funds liquid in case of a loss of income or another financial emergency is too aggressive for some of these folks. For people already in retirement, a low stock market can be a good time to do the conversion. If you account values are down, moving some money to the Roth will allow that money to grow tax free. Assuming growth on the account of 8%, it takes about three to five years to get back what was paid in taxes. From then on, all the growth I the Roth puts you ahead in the tax game on your retirement funds.
Still undecided? Make an appointment with a financial planner to see if your particular situation could make sense for a conversion. Your situation is unique and one of the factors that can’t be quantified is whether or not you’re comfortable with the transaction.
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