It’s so important to have a set of personal finance principles to fall back on when the distractions of life arrive.
It’s so important to have a set of personal finance principles to fall back on when the distractions of life arrive.
About half of the small business owners surveyed said they planned on using social media as part of their marketing strategy this year, according to a recent study by Keap.
Out of those using social media, about three in ten said they planned on increasing their social media budgets this year.
Surprisingly about a third of small businesses said that social media, digital advertising, email marketing, SEO, content marketing, and print ads/direct mail were not part of their marketing strategy.
We’re all aware that student loan debt presents a serious financial obstacle these days. Many are looking at refinancing student loans as an attractive option. Refinancing makes sense for some, but it's not a cure-all for everyone. Here’s 4 consideration to think through before refinancing your student loans.
1. You Start the Clock Over Again (and That Can Cost You) Once you Refinance
Here's a simple explanation of what happens when you refinance student loans:
1. You apply for a new loan with a new lender, asking to borrow the sum of all your existing student loan balances.
2. The lender approves your loan application and underwrites a loan that includes new terms and a new interest rate.
3. The money from the new loan is used to pay off all your existing student loan debt.
4. You repay the new loan.
Getting a completely new loan means an opportunity to secure a lower interest rate. That could save you money if the rate is significantly lower than the rates on your existing student loans -- a big reason why refinancing sounds so appealing.
But it also means that you get new loan terms, which means you're starting from square one.
If your existing student loans had 10-year terms and you were four years into paying them off, your new loan could come with a 10-year term -- meaning you'll be paying on that debt for 10 more years, rather than just six more with your existing loans.
Extending the time it takes to repay your debt could negate any savings you might generate by getting a lower interest rate. Before you refinance student loans, do the math. Is the interest rate you can get from a lender low enough to make paying off loans over more months worthwhile?
Don't forget to take the fees associated with originating and closing a new loan into account, too!
2. You Can't Use Repayment Plans (or Get Loan Forgiveness) Once you Refinance
If you have federal loans now, you can currently enroll in one of the Department of Education's many repayment plans or programs. But if you refinance? Well, remember that refinancing means getting a new loan with which to pay off your existing loans. You won't have federal student loans anymore -- which means you won't be eligible for programs to help you repay your loans. That includes the Public Service Loan Forgiveness program.
That might not be a deal breaker, especially if you don't qualify for federal programs or if using a repayment plan won't benefit you (or if, in your situation, refinancing offers a way to save more on repayment than a federal plan does).
But it's something to know and consider first. Make sure you educate yourself on the programs available to you. Again, do the math to make sure a repayment plan doesn't provide you with a better option than refinancing.
If you need help running through the various scenarios, consider working with a professional. Fee-only financial planners can help you design a comprehensive financial plan that takes all aspects of your life -- including your student loans -- into consideration so you can maximize the money you have to work with.
3. You Lose Benefits and Protections That Come with Federal Student Loans Once You Refinance
Along with losing access to repayment plans and programs, you also lose the benefits that come with federal student loans. When you refinance, your new loan is private -- and that does make a difference.
Federal student loans offer certain protections to borrowers. Those include options for forbearance and deferment. It also includes the ability to discharge the debt if you were to pass away or become disabled.
You don't get this with private loans. If something happened to you, your debt would not be discharged after your death. The lack of protections around private loans could leave you (or your family) in a bad spot in the future.
And if you had a co-signer on your original student loans, you need to ask your new lender for a co-signer release form before you refinance. Without that form, your co-signer gets stuck with the remaining balance of your refinanced loan -- which they'll owe immediately -- if you were to pass away or become incapacitated.
4. You Ignore Other Strategies for Debt Repayment Once You Refinance
Refinancing does seem appealing, especially if you've seen any flashy ads from companies that offer to refinance your loans. But it's not the only way to make your student debt easier to manage and pay off -- and in fact, there may be better options.
If you're struggling to make your payments and want to get them under control, look at other aspects of your financial situation first.
Are you overspending? Could saving more money in your everyday expenses help you come up with the money you need to comfortably make your student loan payment? Are there ways to reduce or eliminate expenses so you have money to pay your loans and save for your goals?
If you're doing your best to save but still can't manage your student loan payments along with your other expenses, it might time to focus your attention on how to make more money. From side hustles, to strategizing a raise, to a switch in your full-time job, you have more options -- and more control over your income -- than ever before.
“We owe this freedom of choice and action to those men and women in uniform who have served this nation and its interests in time of need. In particular, we are forever indebted to those who have given their lives that we might be free.” – President Reagan on Memorial Day, 1983.
Memorial Day is a day of remembrance for soldiers who died in the service of the US military. It arose originally after the Civil War, which claimed 750,000 lives, more than any war in American history. It was due to the large number of Civil War deaths that the first national cemeteries were established.
By the late 1860s, various communities began holding spring-time tributes to the many fallen soldiers. Citizens recited prayers and decorated the graves with flowers. The first Decoration Day occurred in 1868. On that first Decoration Day, General (later President) James Garfield spoke to crowd of 5,000 that decorated the graves of the 20,000 Civil War veterans at Arlington National Cemetery. As Garfield said of the Civil War dead, “For love of country, they accepted death.” By the early 20th century, both Southern and Northern states celebrated Decoration Day together.
Decoration Day was originally celebrated on May 30th, a date chosen because it was not the anniversary of any particular battle. In 1968, however, Congress passed a law that established Memorial Day as the last Monday in May, thus creating a three-day weekend.
All told, over 1.35 million American soldiers have died serving our country, about half of them in combat. In addition to the 750,000 Civil War dead (both sides), we lost 117,000 in World War I and 406,000 in World War II. We lost 37,000 soldiers in the Korean War, and 58,000 in Vietnam. These numbers do not include the over 1.5 million soldiers who have been wounded but lived.
Military combat deaths are not just distant memories, however. Combat veterans walk among us, as do families of recently deceased soldiers. Since 2006, 15,851 active-duty personnel and mobilized reservists have died while serving in the U.S. armed forces.
Memorial Day is not only a day of solemn mourning and reflection. It is also a day to celebrate the family, freedoms, and joys that our soldiers helped to preserve. In large and small cities across the country, people will celebrate Memorial Day with parades. High school and college marching bands will march. Floats and cars will carry local officials, honored guests, veterans’ groups, youth groups, and other people and decorations. There will, of course, be picnics and other gatherings of family, neighbors, and friends.
Visitors to Washington, DC can join the celebration and remembrance in bigger ways, including:
· Saluting the sacrifice of our veterans at the largest Memorial Day parade in the country.
· Honoring veterans at the Rolling Thunder Motorcycle Rally.
· Enjoying the National Memorial Day Concert or the National Memorial Day Choral Festival.
· Visiting the World War II, Vietnam, Korean War and other memorials in Washington (and in other cities, too).
· Visiting Arlington National Cemetery. On Memorial Day, servicemen and women decorate over 260,000 graves with American flags. These soldiers then patrol the cemetery 24 hours a day during Memorial Day weekend to ensure that each flag remains standing.
On Memorial Day, we thank those among us who are veterans, we welcome them back, and we remember those who died.
As one wounded soldier in the Korean War originally remarked, “All gave some; some gave all.”
The way in which your financial planner is compensated can make all the difference in the recommendations they make for you. That’s because some advisors work under a standard that requires only that their recommendations be suitable to your particular situation. Other planners work under a fiduciary standard that requires advisors to consider what is in their client’s best interest. You may be wondering why your advisor would make a recommendation that is not in your best interest. That’s where the issue of compensation comes into play.
There are three basic ways in which financial advisors are compensated:
Through a commission-based model
Through a commission & fee model
Through a Fee-Only model
Both commissioned and commission & fee advisors receive a compensation based on the specific financial products they sell to you. Because of the conflict of interest inherent in these transactions, these advisors may have difficulty putting the client’s interest above their own.
NAPFA’s position is that the Fee-Only method of compensation is the most transparent and objective method available. This model minimizes conflicts and ensures that your financial planner acts as a fiduciary. Fee-Only planners are compensated directly by their clients for advice, plan implementation and for the ongoing management of assets. All NAPFA members are required to work only within the Fee-Only structure, accepting no commissions for their work.
Fee-Only financial advisors may be paid hourly, as a retainer, as a percentage of assets (AUM), or as a flat fee, depending upon the planner you choose.
Professional financial advice targeted toward you, your life and your goals works much better than generalized, scattershot investing tips.
Have you ever received a financial tip or idea that didn’t quit fit your personal situation? Many people mean well when they give suggestions when it comes to investments or taxes, for example. However, it’s really hard to give good advice without having at least a partial view of someone’s financial life.
Everyone’s investment and financial planning needs defy a one-size-fits-all planning strategy. Most financial situations are unique and require personalized, realistic and achievable advice – especially when working with clients from different professions and industries.
I like to ask specific questions about you, you’re values, you’re background with money, what’s currently keeping you up at night when it comes to money, and what’s most important to you when it comes to money. Do you want to save for retirement or a child’s college education? Retire early, later, mini retirements, or create a passion profession wants you’re financial independent? Buy a business, start a business, sell a business? Sell or buy your home, rent and travel?
What do you do for a living? Many professions require specific planning strategies due to certain employer benefits, insurance needs, debt management or retirement income. And if you’re a business owner, entrepreneur or solo-preneur, there’s all sorts of ways to take advantage of profits. For example:
· A retiring contractor leaving behind a physically strenuous work life may initially want to file for Social Security as early as possible, without fully understanding the true costs and benefits of waiting
· A schoolteacher with a pension may be unaware of the opportunities to save and invest through tax advantaged accounts outside of the pension plan
· A young physician may require a specific type of cash flow and risk plan to make sure student loans are paid and family is provided for in case of an unforeseen emergency.
Life stages also often determine the need and perceived availability of specific financial advice. According to a recent survey, only one-third of Americans consistently take action after receiving financial advice. Age, gender and circumstances of advising clients, however, often predicate who will take financial advice, as does the specificity of that advice.
· Individuals are more than 60% more likely to make a financial change after an explicit investment recommendation rather than after general guidance
· One in five of the 1,006 American adults surveyed called finding relevant financial advice “difficult”
· Of those, 51% said they don’t know where to start looking, and 74% said they don’t know which sources to trust for financial advice
The survey also found that the desire to seek advice and take action differed based on age, gender and other individual factors:
· Respondents ages 18 to 34 showed more interest in getting financial advice than any other age group surveyed, and 40% said they frequently look for financial advice
· Those in this age group were also more likely to make changes after receiving advice
· Nearly half of women surveyed believed personalized, objective advice will cost more than they can afford, and more than one-third said they don’t have the time to look for it
· Women were, however, more likely than men to act on advice received
· Boomers were the most likely to report that financial advice was very difficult to find. Only one in three admitted they consistently act on the advice they do receive
When you’re talking to your financial advisor or interviewing potential planners, ask their specific experience with individuals in your profession and stage of life. Ask about strategies unique to your situation and settle for nothing less than advice personalized to your needs.
One of my core tenets of investing success when it comes retirement strategies can be summed up in the title of Jeremy Siegel’s classic book: Stocks for the Long Run. This is a great read for anyone looking to get a good dose of data on why owning a properly allocated basket of diversified equities is often wiser for the long-term investor than, say, owning a portfolio of fixed-income investments.
As with any non-fiction book, all you need to do to get the main substance of the entire book is to flip to the last couple pages. So, I will recite the last couple paragraphs here from Stocks for the Long Run, as I feel these to be the best paragraphs in the book anyways.
Poor investment strategy, whether it is for lack of diversification, pursuing hot stocks, or attempting to time the market, often stems from the belief of investors that it is necessary to beat the market to do well in the market. However, nothing is further from the truth. The principal well-diversified portfolio of common stocks have not only exceeded those of fixed-income assets but also have done so with less risk. Which stocks you own is secondary to whether you own stocks, especially if you maintain a balanced portfolio. Over time, the historical difference between the returns of stocks and the returns of bonds has far exceeded the differences in returns among well-diversified all stock portfolios.
What does all this mean to the reader of this book? Proper investment strategy is as much a psychological as an intellectual challenge. As with other challenges in life, it is often best to seek professional help to structure and maintain a well-diversified portfolio. If you should decide to seek help, be sure to select a professional investment advisor who agrees with the basic principles of diversification and long-term investing that I have espoused in these chapters. It is within the grasp of all investors to avoid the pitfalls of investing and reap the generous rewards that are only available in equities.
People often ask me what books to read to get a better understanding of the stock market, this is one I recommend. Jeremy goes all the back to the 1800s and on up to the early 2000’s with his historical data. He does a great job of distilling it all down to basic principles like the ones in the paragraphs above.
The second part of this three part series, is around the topic of: GOALS.
For some people this gets you really excited, and the prospect of writing goals, and thinking about the future and setting goals is a motivating and energizing experience. That’s wonderful, run with it and use this skill for setting goals to better your financial life. For many, however, the idea of goal setting is daunting or just plain dull. For some the very word “goal” causes you to feel anxious or maybe you just don’t believe in goal setting and it hard to think with any real clarity about the future. For these people, I encourage you to try using words like priorities, or targets, or objectives, or even educated guesses to lighten the burden you feel when it comes to setting goals. Remember that you can always change, modify, remove, and update goals. Most likely things will change, we don’t know what’s going to happen tomorrow let alone 10 years from now. So let that give you some freedom to put things in writing, knowing that you can always edit them later.
The whole idea around the “goals” part of your financial plan is to target a few of the most important desires you have for your life over the next set of years. I’m purposely vague on the amount of goals and the time frame of your goals because that’s the beauty of a personal financial plan, it’s unique to you. In part 1 of your financial plan, you already wrote down Your Highest Values or Your Purpose, which will allow you to check your goals against these values to make sure they align with what’s most important to you.
Another way of thinking about your goals or guesses is to think about the “big rocks” you need to get into the jar first. We’ve all heard or seen the visual experiment around prioritization which uses big rocks, small rocks, pebbles, sand, and a jar. The goal is to get it all inside the jar, a nd if you don’t start with the big rocks you’ll never get it all in. The rest of the stuff just kind of fits in around the sides and on top, as long as you get the big rocks in first. So when it comes financial planning, what are the big rocks in your life that you need to have your money go towards first, each month, or each year?
A good friend, Ron Blue, talks about six categories of long term goals to choose from. These categories might give you some more ideas on where to start when it comes to putting some financial life priorities in writing. The six long term goal categories with which you can begin to prioritize your money for, are:
Being Debt Free
Starting a Business
and, Charitable Giving
Within each category there are numerous specific goals that you may come up with, but these will at least start to get the ball rolling.
Some people like the idea of categorizing your main objectives around time. Having a short term, medium term, and long term goal categories might help you think about what’s important. Short term goals may be 1-2 year goals, medium term might be 3-5 year goals, and long term may be 5-10+ year goals. When you think in terms of what age you’ll be at that time, and try to imagine yourself at that age and what you’d like to have happen, that also helps you visualize and put in writing financial goals.
I work with a lot of business owners in San Luis Obispo, and being one myself, I thought I’d right a ‘quick start’ tutorial on how to set up the simplest kind of business — a sole proprietorship.
This article is meant to be a nuts-and-bolts, “what’s needed”, general information in order to create a formal sole-prop business in SLO.
If you are using a fictitious name, or a doing business as (DBA) name, you will first need to file for it with San Luis Obispo County. Here is the 4 step process outlined: https://www.slocounty.ca.gov/Departments/Clerk-Recorder/All-Services/Fictitious-Business-Name-New-Filing.aspx
In short, you’ll need to make sure your fictitious business name isn’t taken then file for the name here: https://crrecords.slocounty.ca.gov/SLOWeb/action/ACTIONGROUP201S3
Then, you need to publish the fictitious business name statement once a week for four weeks in a local newspaper like the tribune.
Then the newspaper will provide you with proof of publication to the County of San Luis Obispo.
The fee for is about $52. Here’s the link to the county fees: https://www.slocounty.ca.gov/Departments/Clerk-Recorder/Forms-Documents/Fees/Fee-Schedule.aspx
You’ll need complete the business application: https://www.slocity.org/home/showdocument?id=8083
You can mail it to: P.O. Box 8112, San Luis Obispo, CA 93403-8112 or drop it off at: 990 Palm Street, San Luis Obispo, CA 93401-3249
If your business address is your home, you’ll need to complete this form and submit it along with your business application: https://www.slocity.org/home/showdocument?id=11454
You as the home owner, or your land lord will need to sign it. The city will post a small sign in front of your home for a couple weeks that a business permit is pending.
The total cost for the business license for a home-based business located within the city limits is $226.96
Here is the cities “How do I get a business license?” page with more info:
Next, I would go to either the current bank you use, or search for an online business bank to set-up separate business checking and savings accounts. You will need a copy of your business license for this. These accounts will further legitimize your business by keeping all your expenses and revenue separate from your personal bank accounts.
I also like the idea of starting a separate credit history for your business as soon as possible by applying for a separate business credit card with which you can make business expenses with. Disclaimer: if you are not “good” with credit cards, or have a history of not paying your credit card balance off every month, then it’s not a good idea to put yourself in a position to rack up credit card debt through your business. A credit card only makes sense if you pay off the balance every month so as to not subject yourself to any high interest fees.
Disclaimer: this article is not meant to be specific advice nor recommendations for anybody, rather general information.
Join me this summer as I teach a course on Planning for Financial Independence at Cuesta College.
About the class:
We will cover the fundamentals of sound personal financial planning. We will help you chart a course for financial independence according to your values, goals, and targets. We will teach cash flow planning, risk management, investment management, college education savings, retirement planning, and estate planning basics.
DATES: Monday & Wednesday, June 3 & 5, 2019
TIME: 6:00 - 8:00pm
FEE: $40 — all proceeds go back to the Cuesta College Foundation
LOCATION: Cuesta College, San Luis Obispo Campus, Room 4760. Physical Address:
Highway 1, San Luis Obispo, CA 93403
INSTRUCTOR: Eric Maldonado, CFP®, MBA
QUESTIONS: Contact instructor at email@example.com or (805) 250-4552
P.s. Feel free to forward this along to a friend.
You likely live in fear of a tax audit. Here ‘s how to protect yourself.
If the Internal Revenue Service suspects you underreported your gross income by 25% or more, it can challenge your return for up to six years. If the IRS suspects you filed a fraudulent return, no statute of limitations applies.
When the IRS challenges your return, the burden of evidence verifying your claims rests entirely with you.
If you haven’t been traumatized by an audit, you probably keep little of your financial documentation. If you have, you’re probably terrified to part with a single receipt. The IRS is one of the few courts where failure to produce proof of your claims results in the assumption that you stand guilty.
Here are ways to protect yourself:
· Save all financial documents used to create your tax return.
· Retain a paper copy or receipt of any tax-relevant financial exchange. Scan these documents and archive them electronically or acquire them in an electronic format.
· If the purchase constituted a business or other deductible expense, record the expense and why it justifies the deduction. Store this information with the receipts.
For a mutual fund with years of reinvested dividends, each dividend payment is part of the cost basis. As a result, sometimes you can compute the cost basis only if you access the complete transaction history.
Many custodians keep several years of electronic copies of brokerage statements and must send any known cost basis when you transfer 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. Better safe than sorry with the IRS, though.
Permanently keep records of nondeductible contributions to your individual retirement account. You may need the records every year in your retirement that you withdraw money to show that a portion of the withdrawal is not tax deductible. To avoid the hassle, consider clearing out nondeductible IRA contributions by converting your IRAs to Roth accounts.
Keep partnership documents, contracts and commission or royalty structures forever. This includes property records, deeds and titles, especially those relating to intellectual property. It also includes transfers of value for estate planning.
Save all your tax returns. After you file, save the paper or electronic copies, or both, with the rest of that year’s documents.
Once a year, scan and compile the records into PDFs and send them electronically to your financial advisor and the certified public accountant who does your taxes. Scanning the information gives you an electronic backup of the paper indefinitely.
In this week's personal financial newsletter installment, I have a couple articles to highlight from my reading -- Home Ownership vs. The Stock Market and An Under Appreciated Way to Save Big Money -- Your Car(s)
The age old question, "what's a better investment, owning a home or owning stocks?" is addressed in this article. The article writer, Ben Carlson, is more-so writing a response to a research paper put out by the San Francisco Federal Reserve Bank in March entitled The Risk Premium Puzzle. Like many a research paper that attempt to take on a massive data-set in order to draw out a couple of conclusions, there are some glaring issues with this research paper. Namely, the paper shows real returns of the world wide housing market as pretty much keeping pace with stock market returns going back all the way to 1870. Which could then lead people here in the U.S. to believe that owning a home is as good of an investment as owning stocks, aside from the fact that any world wide housing data going all the way back to 1870 would be fraught with all sorts of questionable data gathering methods. Taking world wide data on housing, and using as a basis for owning a home in a very specific part of the world is obviously flawed. Carlson points a couple other very important items to consider when owning a home which this paper didn't consider, "the leverage involved, the cost of borrowing, the length of time in the home, the imputed rent, the psychic income from home ownership and the fact that you have to live somewhere."
Here are a couple opinions from the article I agree with:
"... comparing your home as an investment to the stock market makes little sense."
"Risk can be exponentially higher in housing for the simple fact that it’s also the roof over your head."
"I’m not saying people shouldn’t invest in real estate ... But before you head down that path, no matter what the historical return numbers show, first understand the risks involved in trying to make the roof over your head the biggest part of your nest egg."
I like this article because it gives some outside-the-box ideas and resources when it come to saving money and counting the cost of car ownership.
First consider the actual cost of your car, including:
Nerdwallet has a helpful tool for finding out the real cost of your car per month: https://www.nerdwallet.com/blog/loans/total-cost-owning-car/
The 3 main points listed in the save money category, from most to least obvious & convenient, include:
1. Buy Used
2. Go Down to One Car
3. Negotiate via Email for your next car
On the negotiating via email front, here's a link to an email template: https://www.moneyunder30.com/get-the-best-deal-on-a-new-car
*Graphic shows 2018 net income of publicly listed companies (in billion U.S. dollars)
Apple has long been known as the world’s most profitable company, but those days are over. By preparing to be publicly listed, Saudi state oil company Saudi Aramco had to disclose company reports and was subsequently rated by Moody’s to have earned US$111.1 billion in 2018, far surpassing competitors. https://www.economist.com/business/2019/04/06/saudi-aramco-made-a-111bn-profit-in-2018
In fact, the Saudi company’s net profit equaled that of Apple, Google parent company Alphabet and Exxon Mobil combined, according to Bloomberg. Previously, Saudi Aramco’s accounts had remained mostly secret since the company was nationalized in the 1970s.
Since profits are known only for publicly listed companies or those planning to become listed on a stock exchange, the earnings of a large number of companies around the world, especially state companies, remain unknown and are not included on the list. Saudi Aramco’s IPO was originally scheduled to take place in the previous year but has been rescheduled for 2021.
In this 3 Part Series I will cover, what I believe to be, the three main elements of a properly built personal financial plan.
The 1st element of a well written personal financial plan is: Your Purpose and Your Values.
We start your financial plan writing process with the question: “What is important to you about money?” And, if you have a significant other, this is a wonderful opportunity to hear from them about what makes money important to them. So you can take turns asking each other “what is important to you when it comes to money and finances?”
It’s important to start with this type of question before moving on into goals, specific to-do items, or investment techniques, because this focuses the entire personal finance discussion around your core values that you hold to be most important to you.
Everyone has a story when it comes to money and how it has impacted their life from childhood all the way through adulthood. And this plays a major roll in finding out what you value most when it comes to money and having a plan for your finances. So, a few other really insightful questions to ask of yourself, or for you and your spouse to ask of each other, is “what was money like for you growing up” or “what is your first memory of money’s significance in your life?” The answers to these questions will start to fill in some details as to why you think about money the way you do.
Another great exercise to use in coming up with your highest values or your main purposes when it comes to your finances, is to ask yourself or have some one ask you “why is money important to you?” And the key is to continue asking this question over and over with each new answer that comes to mind, until you come to your highest values or purposes for money. Usually it take 5 to 7 “why’s” until you come to a place where your answer is the most important thing to you when it comes to dealing with money and planning for the future.
For example, someone might answer “providing for my family” to the first question “why is money important to you?”
Then the second “why” question is “why is providing for your family important to you?” And someone might answer, “because I want to make sure I can spend time with my family while we’re healthy and young.”
Then the third “why” question is “why is spending time with your family important to you?” And the answer might be, “because I want to make sure we experience new place around the world”
And (you guessed it) the fourth “why” is “why is that important to you?” The answer, for example, might be “because I want to give and serve people in need with my family?”
The fifth question, “is there anything more important than giving and serving with your family?” Answer, “No that’s the most important thing to me.”
Another title for this exercise is called “The 5 Why’s.”
Now as the example above shows, this person now has at least one purpose or one highest value for their financial plan, which is "to give and serve those in need with my family.” This then become a driver for the rest of their financial plan and it dictates their main goals.
It helps to frame goals with what you value, and it gives a “true north” when determining if your goals are compatible with what is really important to you. Putting your values and purpose for money in writing also serves as a way of preventing you from setting goals that don’t really jive with what’s important to you and/or your significant other. For example, maybe someone thought their mail goal was to buy a condo in the city, when in reality, after going through this exercise, they actually value most flexibility, space, and travel. So, this allows them to redirect their funds towards these goals that better align with their lifestyle desires.
In short, start your financial plan by trying to come up with one or two purposes or highest values for money in your life. This is different than a goal, because goals tend to change based on ages and stages of life, where as, your values and your purpose tend to stay constant and consistent throughout life.
Putting “your why” to paper, or “your highest values and purposes for money” in writing might sound daunting or even a little too touchy-feely when it come to writing a personal financial plan. However, it’s the most important step of the process. At first it can be slow-going to come up with core values when it comes to money but give it some time and you’ll start to recall pivotal money moments in your life and you’ll start to have answers to the “why is money important to you?” question.
One of the most misunderstood benefits of the Roth IRA, in short, is FLEXIBILITY.
What do I mean by flexibility. Well, in particular, most people either don’t know or are misinformed about when you can take money out of their Roth IRA free of penalties or taxes. Namely, you can take out the contributions you put into your Roth IRA at any time for any reason without penalties or taxes owed.
For example, if you contribute the maximum amount possible into the Roth IRA in 2019, $6,000, you can take that same amount out the next day or the next year, whenever you like, at any age, for any reason, without being penalized or taxed.
This is from IRS Publication 590-B:
Are Distributions Taxable? You don't include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). https://www.irs.gov/publications/p590b#en_US_2018_publink1000231057
Now, the main purposed and benefit of contributing money into the Roth IRA is to leave the funds in there to invest and grow for years to come, but it’s important to know your options. My hope is that by knowing all the benefits of the Roth IRA, you’ll become more inclined and feel less barriers to fully funding your Roth IRA every year. My theory is that if you can get yourself to make it a habit of fully funding your Roth IRA each year, then you’re more likely to keep the funds in there for when you need it most — when work is no longer a desired option or a possibility.
Chairman and CEO of Berkshire Hathaway, Warren Buffet, released his annual letter to shareholders on February 23rd, 2019.
While the entire 15-page letter is great reading for all investors, here are a few snippets to incorporate into how you think about investing (and maybe even your life). Here’s the link to the full letter: http://www.berkshirehathaway.com/letters/2018ltr.pdf
“Our advice? Focus on operating earnings, paying little attention to gains or losses of any variety. My saying that in no way diminishes the importance of our investments to Berkshire. Over time, Charlie and I expect them to deliver substantial gains, albeit with highly irregular timing.”
For nearly 30 years, Buffet would open his letter featuring the percentage change in Berkshire’s per-share book value. He wants to stop doing that now because he believes that Berkshire’s stock price will provide the best measure of business performance.
“We very much like that: If Charlie and I think an investee’s stock is underpriced, we rejoice when management employs some of its earnings to increase Berkshire’s ownership percentage.”
Buffett knows that Berkshire followers often focus on the many businesses they own – at last count there were 66 operating companies and another 47 investments in other companies – and he calls these companies “trees.”
But then he groups Berkshire’s trees into 5 different groves “of major importance, each of which can be appraised, with reasonable accuracy, in its entirety.”
With respect to each of his trees, he suggests that each is vastly different “ranging from twigs to redwoods.”
Buffet further suggests that a “few of our trees are diseased and unlikely to be around a decade from now.”
Then he adds that “many others, though, are destined to grow in size and beauty.”
Here are some of Buffett’s most thought-provoking quotes, taken directly from his shareholder letter – the words in bold are not Buffett’s but rather just category titles.
True Value Investor. “Abraham Lincoln once posed the question: ‘If you call a dog’s tail a leg, how many legs does it have?’ and then answered his own query: ‘Four, because calling a tail a leg doesn’t make it one.’ Abe would have felt lonely on Wall Street.
I will never risk getting caught short of cash.
My expectation of more stock purchases is not a market call. Charlie and I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities. Our thinking, rather, is focused on calculating whether a portion of an attractive business is worth more than its market price.
It would be foolish for us to sell any of our wonderful companies even if no tax would be payable on its sale. Truly good businesses are exceptionally hard to find. Selling any you are lucky enough to own makes no sense at all.
At Berkshire, the whole is greater – considerably greater – than the sum of the parts.”
Shareholders First. “For 54 years our managerial decisions at Berkshire have been made from the viewpoint of the shareholders who are staying, not those who are leaving. Consequently, Charlie and I have never focused on current-quarter results.
At Berkshire, our audience is neither analysts nor commentators: Charlie and I are working for our shareholder-partners. The numbers that flow up to us will be the ones we send on to you.”
The American Tailwind. “Remember, earlier in this letter, how I described retained earnings as having been the key to Berkshire’s prosperity? So it has been with America. In the nation’s accounting, the comparable item is labeled ‘savings.’ And save we have. If our forefathers had instead consumed all they produced, there would have been no investment, no productivity gains and no leap in living standards.
Charlie and I happily acknowledge that much of Berkshire’s success has simply been a product of what I think should be called The American Tailwind. It is beyond arrogance for American businesses or individuals to boast that they have ‘done it alone.’ The tidy rows of simple white crosses at Normandy should shame those who make such claims.
There are also many other countries around the world that have bright futures. About that, we should rejoice: Americans will be both more prosperous and safer if all nations thrive. At Berkshire, we hope to invest significant sums across borders.
Over the next 77 years, however, the major source of our gains will almost certainly be provided by The American Tailwind. We are lucky – gloriously lucky – to have that force at our back.”
Love What You Do. “We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster. (Just writing about the possibility of a huge purchase has caused my pulse rate to soar.)
On March 11th, it will be 77 years since I first invested in an American business. The year was 1942, I was 11, and I went all in, investing $114.75 I had begun accumulating at age six. What I bought was three shares of Cities Service preferred stock. I had become a capitalist, and it felt good.
For 54 years, Charlie and I have loved our jobs. Daily, we do what we find interesting, working with people we like and trust.”
As a business owner, you have invested a great deal of time and effort into building your company over the years. You know the amount of planning needed to maintain daily operations and grow your business. Now, you may be ready for retirement. But, the planning does not end. What you do next, and how you navigate potential tax issues and regulatory pitfalls, can make a big difference in the long-term success of your retirement.
Here are some of the more “taxing” concerns you may face associated with retirement:
Early retirement and early withdrawals.
If you take withdrawals from your qualified retirement plan before age 59½, you may be subject to a 10% Federal income tax penalty. There are certain instances in which early withdrawals may be taken without penalty, such as death, disability, or substantially equal periodic payments. Otherwise, at 10%, the penalty tax can be significant, so it is important to plan accordingly.
Waiting too long. You must begin taking required minimum distributions (RMDs) from your traditional Individual Retirement Account (IRA) by April 1 of the year after you reach age 70½. If you fail to do so or do not withdraw enough, you will be subject to a 50% penalty tax, which will be incurred on the difference between your RMD and the actual withdrawal amount. Your RMD amount is based on the previous December 31 balance, divided by your life expectancy (or the joint life expectancy of you and your spouse, if applicable).
Working while receiving Social Security.
If you receive Social Security and also continue to work, a portion of your benefits may be taxable. For more information, refer to Internal Revenue Service (IRS) Publication 915, Social Security and Equivalent Railroad Retirement Benefits, or consult with your tax professional.
You may be subject to the “give-back” if you are under full retirement age (based on the year of your birth), receive Social Security benefits, and earn income. The law requires a give-back of $1 for every $2 earned in excess of $17,040 in 2018 for those individuals between the ages of 62 and full retirement age who are receiving a reduced Social Security benefit.
For the year in which an individual attains full retirement age, the give-back is $1 for every $3 in excess of $45,360 for 2018. Starting in the month in which the individual attains full retirement age, the give-back is eliminated. If you are under full retirement age and thinking about taking Social Security benefits while still working, it is important to understand the potential tax consequences of doing so.
Where you live in retirement matters.
Each state has its own rules on income, estate, sales, and property taxation. Your tax and legal advisors can help you assess the potential tax advantages and disadvantages of your retirement destination.
Planning Continues through Retirement
Your personal retirement plan probably involved building a nest egg with regular savings over decades. Now that you are preparing for retirement, continue with your planning.
Preparing a child for college may be a rewarding, but worrisome, time for you and your family. Although you know that an education is “priceless” you cannot help but notice how large the price tag actually is. This may leave you with many questions regarding college financing for your child. The U.S. government has established an Internet resource for such a need. The website, https://www.ed.gov/college , gives information on college costs, and you can even apply for financial aid online.
After years of saving and planning for their golden years, many people nearing retirement fail to consider the tax burden they may face on income they receive after they stop working. While you may see a reduction in the amount of taxes you owe after the age of 65, you still need to plan ahead if you want to minimize your tax bill from the IRS.
Depending upon your total income and marital status, a portion of your Social Security benefits may be taxable. For a rough estimate of your potential tax liability, add half of your Social Security benefits to your projected income from all other sources. This figure is your adjusted gross income (AGI), plus any tax-free interest income from municipal bonds or foreign-earned income. Up to half of Social Security benefits are taxable if this sum, which is called your provisional income, exceeds $25,000 for singles or $32,000 for married couples filing jointly. However, up to 85% of Social Security benefits are taxable if your provisional income is above $34,000 for single filers or $44,000 for married couples filing jointly.
Use the Social Security Benefits Worksheet in the instructions for IRS Form 1040 to calculate the exact amount of taxes owed. Rather than writing a large check once a year, you can arrange to have taxes withheld from your Social Security benefits checks by completing Form W-4V and filing it with the Social Security Administration.
In addition to collecting Social Security benefits, most retirees receive their income from a variety of sources, including distributions from 401(k) accounts and individual retirement accounts (IRAs); payouts from company pensions and annuities; and earnings from investments.
Contributions and earnings growth are tax deferred on 401(k)s and traditional IRAs; however, distributions from these accounts are fully taxable, but have no penalties if withdrawals are made after age 59½. If you have savings in 401(k) accounts or traditional IRAs, you must begin making withdrawals from these accounts—and paying taxes on the distributions—by April 1 of the year following the year in which you reach age 70½. If you are at least 59½ years old and have owned a Roth IRA or Roth 401(k) for at least five years, withdrawals are completely tax free. There are no minimum distribution requirements for Roth accounts.
Most retirees with nest eggs or pension income of any size will pay at least some taxes on their retirement income, but there are strategies to reduce the amount owed. While it usually makes sense to delay taking taxable distributions from retirement accounts until the funds are needed, or until distributions are required, you may want to withdraw more funds in tax years when claiming a large number of deductions temporarily lowers your tax rate. You may, for example, choose to take advantage of itemized deductions, such as the breaks for medical expenses or charitable gifts, in certain years, while taking the standard deduction in other years.
A desire to leave a portion of your assets to your family may also influence how you handle withdrawals from tax-deferred accounts. Keep in mind that, if you leave behind funds in a traditional IRA, the rules for inheritance can be complex. To avoid these issues and make it easier to pass on your estate to family members, consider converting traditional IRAs to Roth IRAs. While you will have to pay taxes on the funds converted, moving to a Roth IRA eliminates future tax liabilities, regardless of whether you use the funds in retirement or pass the money on to your heirs.
The belief that you, or a particularly talented financial manager, can foresee the direction of the stock market is a seductive one. Some investors are confident that, with proper research, they can make money by snapping up equities when prices are low, and shifting their investments into cash or bonds when the market hits its peak. Even worse, they believe they can pay someone else can do it for them. But longitudinal studies have shown time and time again that no one can consistently predict the direction of the market in the short run.
However, many armchair investors persist in the belief that, by carefully following business news and trusting their “gut” instincts, they will be able to beat the market. Some study the stock tips in personal finance magazines, others hope to glean additional insight from analysts’ reports and specialized investment newsletters, and still others attempt to mine all the available data, crafting complex simulations of how the market is likely to behave in the future.
But if financial professionals struggle to keep ahead of trends, private investors are even less likely to outfox the indexes. As soon as a piece of business or economic news hits the airwaves and the Internet, analysts and brokers react immediately to the information. Because these financial professionals act so rapidly, the stock market almost always reflects all the known information at any given moment in time. And even if an individual investor were able to develop an analytic model with some real predictive value, unexpected events—such as a terrorist attack or a natural disaster, or even a political scandal—could lead to sudden and dramatic market fluctuations that no model based on historical data could have anticipated.
It is only natural that investors would want to find some way to sit out bear markets and get back just in time for the next bull run. It is useful to keep in mind, however, that even the slowest equity markets have some bright spots. A diversified portfolio will help you protect against loss and capture whatever gains might occur in a market downturn.
Investors run a big risk by selling when they believe stocks have reached their peak. They may turn a profit when cashing in their equity holdings, but they could also miss out on some of the market’s best cycles. Being absent from the market for only a few of the days or weeks with the highest percentage gains can decimate a portfolio’s returns over time. Market timers who sell frequently also lose money to transaction costs and taxes, and miss out to a large extent on the compounding effect that benefits investors who remain in the market consistently. Instead of trying to time the market, investing in a properly allocated diversified portfolio driven by a goals-based financial plan is a much better strategy.
Trying to pinpoint the right time to invest in the stock market is an exercise in futility. If you have a longer period to save, owning equities provides the most effective hedge against inflation and taxation available. Since it is impossible to know where the market might go from here, it makes sense to start investing now and continue investing on a regular basis, regardless of market conditions. Remember: long-term investment success is achieved not by timing the market, but by time in the market.