Financial Independence 1: Avoiding Budget Busters

Posted by on Jul 7, 2014 in Featured, General | 0 comments

“Tomorrow is often the busiest day of the week.” – Spanish Proverb

This will be the first in a series on TRUE financial independence … and, the first step, really, is getting your spending under control.

In that vein, here is the first of  three rules that will help you and your spouse limit impulse buying and better align your spending with your thoughtful values…

First, limit the dollar amount you can spend unless you and your spouse both agree. You owe it to your partner not to undo months of frugality and sacrifice by acting on a whim. Honoring each other in this way helps avoid resentment and alienation that can bust your marriage as well as your budget.

Negotiate the dollar amount. I suggest setting a limit of 1% of your monthly budget. If your annual spending is $60,000 and your monthly budget is $5,000, you would need to confer on any purchase over $50.

The idea of setting a limit may seem more acceptable if you consider the millionaire mindset. Millionaires recognize that saving and investing just $100 a month over the course of your working career produces a million dollars at retirement. They watch their spending carefully. They recognize that frugality is just another way to describe deferred consumption, which is the definition of capital. And capital, once invested, is what produces an ongoing income stream.

Put another way, if the average budget should include 5% taxable savings each month, every time you mindlessly spend over 1% of your budget, you lose more than a fifth of what you should be saving and investing outside of retirement accounts. I’ve seen many financial affairs ruined by the repeated spending of amounts much less than $50 at a time.

If you are struggling financially and having trouble agreeing on your goals, you may want to set the limit lower. As you both begin to feel your spending is under control and your savings exceeds your targets, you can readjust the limit higher. Exceptions can be made for regular bills and necessary purchases such as utilities and groceries.

Talking with someone else about a possible purchase can clarify your thinking not just about the item but also about your other competing financial priorities. It changes the question from “Do I want to buy that?” to “What do I want to give up to buy that?”


And, as always, my team and I are here to help! Stay tuned for more information. 
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When College Has a Negative ROI!

Posted by on Jun 22, 2014 in Featured, General | 0 comments


“What’s right isn’t always popular. What’s popular isn’t always right.” – Howard Cosell

As many have claimed (such as the US Census Bureau, for example: http://www.census.gov/prod/2002pubs/p23-210.pdf ), a typical college degree is worth up to a million bucks over a career — but that’s not true for every degree.

What’s becoming more and more apparent is that prospective college students need to do their homework beforehand, because some degrees simply aren’t worth the investment.

Of the 1312 colleges evaluated in the 2014 PayScale College ROI Report (found here: http://www.payscale.com/college-roi/full-list/financial-aid/yes ), graduates from 58 institutions are estimated to be worse off after 20 years compared with those who skipped college and went straight to work. These 58 lackluster institutions make up 4.42% of all the colleges surveyed. The lowest grade goes to Shaw University in Raleigh, North Carolina, where PayScale estimates that grads will be $121,000 worse off after 20 years for earning a degree.

To calculate this estimate, PayScale uses an opportunity cost measure they call return on investment (ROI). After factoring all the net college costs, the report compares 20 years of estimated income of a college graduate versus 24 years of income from a high school graduate who started working immediately and didn’t have to pay college expenses (or take loans).

Future college students (and their parents) must realize that not all colleges are equal.

The graduates from the lowest ranking schools report earning less income after graduation. The PayScale website is helpful because it allows you to see reported earnings of graduates from over a thousand colleges. I also assume that low-performing schools in this report tend to offer less financial assistance, which leaves their graduates with larger debt burdens.

However, the most highly endowed colleges can reduce their cost of attendance with grants and scholarships. For example, Stanford is one of the most expensive schools based on sticker price, but its financial assistance is typically generous. So the net cost is very competitive, and their ranking is number 4 based on the PayScale study.

Debt burdens are relative. A doctor’s salary can more quickly pay off a high-price education loan than can a teacher’s. A good rule of thumb is to avoid incurring college debts that will be more than half of your expected annual income. Limiting loans to no more than 50% of a future salary allows graduates to pay off their debts after five years, using 10% of their future salary.

Some students begin to realize their faulty economics only after they have enrolled. Not surprisingly, those schools with the lowest ROI also have the highest dropout rates in the country. For example, we have Adam’s State, which has a 21% graduation rate and a 20-year net ROI of minus $20,143.

What should be clear from this data is the world of difference between the outcomes of graduates of highly-rated schools, and of those near the bottom of the barrel. Attending a college with a poor ROI is not necessarily a mistake, but the financial aid package had better be sweet. So,treat your college decision like any investment: you also need to do your homework before you commit your time and money to an unknown outcome.

I hope I am helping the college choice discussion for you, rather than hindering! If you need help in paying for your children’s college, let us review your plan to make sure you are doing this
on the most efficient basis.
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Is A Trust Smart For You?

Posted by on Jun 7, 2014 in General | 0 comments


“If we wait until we’re ready, we’ll be waiting for the rest of our lives.” – Lemony Snicket

Parenting is more than reading to your children or getting them to eat their vegetables. It’s also about securing their financial future. One way to do that is by drafting a trust and naming a trustee.

This is a great tool to consider, and it supersedes a will in many cases. It’s definitely something that every family should look into.


Here are a few questions to ask yourself to determine if a trust is right for your family:

Do you anticipate leaving your children more than a modest sum of money?
A trust may not be worth the effort if you think you’ll only be leaving a child (or children) $100,000 or less. On the other hand, if you’re leaving life insurance money to cover four years of school and you own a home, there’s a good chance a trust would make sense for you.

Do you want to have some say in how your children’s money is spent?
A trust allows you to restrict spending to basic support, including food, clothing, education and health care.

This is something that can’t be done with a custodial account. If the custodian is a soft touch, he could end up lavishing your child with designer jeans and a fancy car, leaving very little left for the college years. Even worse, if the custodian is also the guardian, he could start writing himself large “support” checks to help cover his other expenses.

Would you prefer that your children not inherit the money when they turn 18 or 21?
If you think giving a high-school senior a large sum of cash is a recipe for disaster, then you should consider a trust. The ability to delay inheritance is one of the great benefits of a trust.

Should something happen to both parents, for example, children can receive half of their inheritance at age 30, and the remaining amount when they reach 35 (or some other pre-established benchmark). Our 20′s are such a transitional time that it often makes sense not to burden children with weighty financial decisions.

Do you want the money to be used for a college education?
If you specifically bought life insurance so that there would be enough money to help fund college in the event of your death, then you’ll definitely want to delay the age at which your kids inherit your money. Otherwise, your child could think a red Ferrari is a better investment than a diploma.

Would you like your children to have recourse if their money is mismanaged?
One more benefit of a trust that you don’t get with a custodial account is that a trust is a legal contract; the trustee has an obligation to follow your directions and act in a reasonable and prudent manner. If the beneficiary feels the trustee spent the money frivolously, he can demand an accounting, and can sue for reimbursement if the trustee acted improperly with the funds. It may be pretty tough to prove illegal or improper actions with a trust, but just the threat of a possible lawsuit can keep someone in line.


These ideas above are to help you keep control of your assets.  If you want to get in control of your taxes, check out our free book on saving taxes. Just click on the top right to download.

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Caring For Two Generations!

Posted by on May 19, 2014 in General | 0 comments


“You cannot drive your car looking at the rear view mirror. Focus on going forward.” – Steve Harvey

Depending on your perspective, this can feel like a double-whammy.

Certainly, as with children, it’s always a better idea to focus on the benefits of more time with your parents, etc. … but yes, I’ve seen many times how this can put a major drain on a family.

From what I’ve observed of adults thrust into the role of caring for their parents, the biggest struggle often comes from trying to keep their dual responsibilities segregated. They try to ensure that the needs of the aging parent don’t impact what’s going on in their children’s lives.

As an example, the adult children feel like they have to choose between making sure that Mom takes a walk for exercise, and attending a child’s piano recital. No matter what the adult parent chooses, he or she often feels like a failure at everything.

What you need to realize is that this process is not something that you can keep separated in your life. You’ll do your family a great service by viewing it as an experience to be shared with everyone in the family, and maybe even with some members of the outside community.

Ludwig van Beethoven's Parents, Johann van Bee...

Ludwig van Beethoven’s Parents, Johann van Beethoven and Maria Magdalena Keverich (Photo credit: Wikipedia)


If you find yourself in this situation here are 3 practical tips I can offer:

1) Get the Actual Facts. You may have avoided talking with your parents about finances in the past. Whether you were taught that those things are private or “it just never came up,” now is not the time for surprises. You need to know how your parents are doing financially and whether they’ve made any provisions in case they become ill or suffer a long-term disability.

2) Ensure the Estate is Set Up Right. At this stage of your parent’s life it’s important to make sure that your parent’s legal house is in order. This can be a tricky conversation to have, but your parents absolutely need to have a financial power of attorney, advance health care directive (a healthcare power of attorney plus a living will), and a simple will. It may not be the fullest estate plan for your parents. It might not be proper Medicaid planning. However, it is the bare minimum you will need to help care for your parents.

3) Insure Against the Future. Now is the time to examine long-term-care insurance or assess whether savings will cover an extended nursing home stay, assisted-living facility costs or extended home-care services. You may be tempted to begin to liquidate your holdings or stop saving for your own benefit to help pay for the cost of your parent’s care. Big mistake.

Remember that there aren’t nearly the same kind of government programs or lending scenarios that will help you pay for your kids, or their college or fund your retirement — as there are to help support aging parents. It’s vital that you continue to save for your retirement.

We are here to help in this process.  Give us a call and we can help you answer the top four most important questions for planning your financial future.
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What To Do After Your Return Is Filed!

Posted by on Apr 27, 2014 in Tax Planning and Preparation | 0 comments


“Success is simple. Do what’s right, the right way, at the right time.” – Arnold Glascow

Whether you used us or not, the monkey is now off your back and your return is filed (hopefully!). At least, of course, if you didn’t file for an extension.

It does feel nice, even if more money was owed than you would like … because it *is* completed, after all.

But that doesn’t mean you may not still have questions. Here are some common ones we get this week …

1. “When will I get my refund?”

Well, the IRS does seem to have entered the 21st century.

If you had us “e-file” your return, you can check your status right now, or if you had us mail a paper return, after about 3 to 4 weeks.

When you’re checking with the following options, make sure you have a copy of your tax return on hand or know your “filing status“, SSN and the exact dollar amount of the anticipated refund.

Online: Go to IRS.gov and click on Where’s My Refund.
[or go right to: https://sa2.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp ]
Automated Phone: Call 1-800-829-4477 24 hours a day, 7 days a week for automated refund information.
In-Person Phone: Call 1-800-829-1954 during the hours shown in your IRS form instructions. [Of course, the hold time for the IRS is ... somewhat of an issue]

2. “Do I need to keep a copy of my return?”
Yes, for a *minimum* of three years, but I recommend forever. There’s all kinds of contexts where it’s useful. We do keep one on file, on your behalf, but it’s just smart and safe for you to keep one in a secure place at home. (I’ve already written about Amended Returns, and you need a copy for that process, of course.)

As for the supporting documents from your return, anything that relates to a home purchase or sale, stock transactions, retirement, business or rental property, should be kept much longer than the three years.

3. “I think there’s a mistake in my return. What should I do?”
Sometimes, you’ll find a receipt or a documentation after April 15th which really would have changed your prior year tax return. That’s, again, when you would have us file an “Amended Return”. Here are some other, common reasons to Amend

• You neglected to report some income earned.
• You claimed deductions or credits you should not have claimed.
• You did not claim deductions or credits you could have claimed.
• You filed under one filing status, but you should have filed under another.

You might have other questions, which I haven’t addressed here. Let me know!

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The Proper Place for Social Security

Posted by on Mar 17, 2014 in General | 0 comments


“When I look back on all these worries, I remember the story of the old man who said on his deathbed that he had had a lot of trouble in his life, most of which had never happened.” -Winston Churchill

Imagine a man named Bill Fredericks, born in 1948, who is celebrating his 66th birthday today by filing to collect Social Security at full retirement age. Bill’s final salary was $50,000 per year, although when he started working in 1968 he was only earning $7,304 annually.




For the past 46 years Bill has had Social Security withheld from his paycheck. When he first started, the total Social Security withholding was only 7.6%, which for Bill was $46.26 of his $609 monthly paycheck. On his last pay stub, the government took 12.4%, or $516.67 of his $4,167 monthly salary.

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Self-Protection Through Knowing How Long To Keep Tax Records

Posted by on Feb 10, 2014 in General | 0 comments


“Problems are only opportunities in work clothes.” – Henry J Kaiser

First, retain a paper copy or receipt of any tax-relevant transaction. Scan these documents and archive them electronically, or acquire them in an electronic format. If the purchase has a manual or warranty, store all the documents in the same electronic and physical location.

Seal of the United States Internal Revenue Ser...

Seal of the United States Internal Revenue Service. The design is the same as the Treasury seal with an IRS inscription. (Photo credit: Wikipedia)



Sadly, the IRS has ruled bank or credit card records to be insufficient documentation. As a result, just keep your statements long enough to reconcile your account.

If the purchase was a business or tax-deductible expense, record the expense and why it justifies the deduction. Store this information with or on the receipts.

Second, keep brokerage statements indefinitely for taxable accounts. You are responsible for reporting the cost basis of any security you sell to calculate the capital gains tax. For a mutual fund with 30 years of reinvested dividends, each dividend payment is part of the cost basis. As a result, the cost basis can sometimes be computed only if you have the complete transaction history.

Without knowing the cost basis, the IRS could argue that the entire value of the investment be treated as gain.

If you have lost the record of how much you originally paid for an investment, instead of selling and paying 15% or more of the value in taxes, you can use that investment as part of your charitable giving. Gifting appreciated stock avoids the tax owed and still qualifies for a full deduction. Oddly enough, the IRS still asks for the original purchase date and price for gifted securities, but leaving these blank has no effect on your tax owed.

Many custodians keep several years of electronic copies of brokerage statements available. And they are now required to send any known cost basis electronically when you transfer securities to a new custodian. If your current custodian has the correct cost basis of your securities, you probably no longer need to keep brokerage statements. However, an approach of “better safe than sorry” is always advisable with the IRS.

Third, keep IRA nondeductible contribution records forever. You may need those records every year that you withdraw money in retirement to show that a portion of the withdrawal is not tax deductible.

Or to avoid the hassle, clear out nondeductible IRA contributions by converting all of your IRA accounts to Roth accounts.

Fourth, keep partnership documents, contracts, commission or royalty structures forever. This includes property records, deeds and titles, especially those relating to intellectual property. It also includes any transfers of value for estate planning purposes.

Finally, save all of your tax returns. After you file, save the paper and/or electronic copies with the rest of that year’s financial documents.

Tax returns and all the supporting documentation must be kept at least seven years. The IRS can audit your return for up to three years from your filing date. However, the three-year limit only applies to good-faith errors.

If the IRS suspects you underreported your gross income by 25% or more, they have up to six years to challenge your return. And because you may file for an extension at the October 15 deadline, you must keep your records for at least seven years.

Regardless of those rules, though, if the IRS suspects you filed a fraudulent return, no statute of limitations applies. Because the IRS is run and organized by fallible people (with all of their attendant biases, emotions, etc.), we suggest keeping your tax returns and documents forever.

Unfortunately, whenever the IRS challenges you, the burden of producing evidence that your claims are true rests entirely with you, so you had better have your documentation in order.

Taxpayers collectively spend six billion hours, or 8,758 lifetimes, annually trying to comply with the tax code. Fortunately, as I previously mentioned, YOU don’t have to be the one to do all the heavy lifting. We
are on your side…
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