Tax Records -- Trash It or Stash It?

Whether you’ve just finished your tax preparation regimen or you’re pushing the limits and still gathering your information, you’re likely facing a pile of papers on your home office desk (or perhaps the kitchen table).  If you haven’t already gone through the process of organizing your financial records in 2012, now is the time. 

In a previous post, I provided financial document retention guidelines that will be helpful in the tax-time clean-up process.  When cleaning up the tax mess, here’s what you should keep:

• Records of Income - shred your paystubs once you have your W-2; keep your W-2 with a copy of your tax return.
• Interest, Dividend and Capital Gain/Loss Records – keep until the appropriate 1099 is received.  Keep year-end statement for investment accounts to track progress, and purchase confirmations until the investment is sold.
• Charitable Donations and Deductible Expenses – Keep with your tax return.
• Real Estate-Related Papers – keep all records for 3 to 6 years after the property is sold and all taxes paid.  Although most real estate sales these days won’t have capital gain implications (current tax law allows up to a $250,000 gain for single filers and $500,000 for joint filers before there is income tax assessed on the gain), you may be able to use a loss on real estate for a tax advantage.
• Tax Returns – Keep them forever.

While it may seem that there are more records you need to keep than those you can shred, remember there are ways to lessen the burden on your space.  Personal scanners are inexpensive and can allow you to electronically file and store these important documents; just be sure to back up your files. Or, if your financial advisor has an electronic document management system, he or she may be willing to hold a copy of your records in your client file.

Whether it’s the New Year or Tax Time, or another time during the year that triggers your financial record keeping clean-up, use our easy-to-use record retention guidelines and make it an annual event! You might even consider printing out this blog and filing it away for easy reference when tax time rolls around again.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Saving for Tomorrow with TED Talks

If you haven’t heard of them before, TED Talks (TED stands for Technology, Entertainment, and Design) offer a wealth of inspiration and discussion points. As their tagline says, they truly have Ideas Worth Spreading. At The Center, we regularly discuss insightful TED video talks whether they offer thoughts on personal growth, practice management or investing.

One of my favorite TED Talks was recorded in November 2011 and featured Shlomo Benartzi. Benartzi is an economist in the field of behavioral finance and his work and studies seek to help improve an investor’s chances of saving to meet goals such as retirement. Anyone who thinks that they might need to save for the future – and that should encompass practically everyone – could benefit from viewing this video. 

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the speaker and not necessarily those of RJFS or Raymond James. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment decision.

College Students and Debt

Recently I read an article about the level of debt college students have at the time they graduate.  No, I am not talking about student loans. Those are overwhelming enough.  I am talking about credit card debt.  One study found that the average college student has 4 to 6 credit cards.  The combined balances on those cards averaged between $3,000-7,000. Can you imagine beginning a new career with that much financial burden? It is a formula for disaster.

I remember, in what seems like the not-so-distant past, our 17-year-old college freshmen whispering through the phone that no one on her floor had a clue of how to balance a checkbook and they were bouncing checks all over the place. Today, you’d replace “balancing a checkbook” with “responsibly handling a credit card” but in either case, it is a reminder that when students enter the halls of higher education, they do not have instant financial savvy. But it can be learned. Wise parents give their student some financial responsibility while they are still under their wing. Before leaving the parental home:

• Try designating bills they have to pay with their own earned money or an allowance.
• Talk to them about the use of credit and more importantly the consequences of misuses of credit and what it can mean when trying to purchase a car or qualify for a mortgage.
• Start with a loaded credit card, they are a great way for students to experiment. Its easy to see how quickly pizza and incidentals can add up over time. When the card is empty, it can be a long month.
• Let them make small mistakes under your guidance and let them work their way out.

Last but not least, tell your student you are going to have joint statements for whatever time period you deem necessary to give them help. Discuss money situations---that is what adults do.

Keep in mind you taught them to skate, you taught them to ride a bike and to drive a car.  Managing money should get the same attention.

Marilyn’s Book Review - The Little Book of Economics

As the story goes, ask two economists or five what the future will bring and what is going on and you get as many answers.  Finally, there is a clear, well-written book that is concise and up-to-date giving us some insight as to why this situation exists.  More importantly, the book explains the basics of economics in a readable manner, discusses the booms and busts of the past 20 years and, in particular, the most recent downturn.  The author discusses how economic concepts and institutions affect our lives.  There are few charts and graphs, just logically written explanations infused with story examples and some humor. So, what is the book?

The Little Book of Economics:  How the Economy Works in the Real World written by Greg Ip, an educated economist and journalist.  He is the U.S. editor for The Economists and has written for the Wall Street Journal and the New York Times. This 250-page book is available at bookstores, through Amazon and can be downloaded to your Kindle or iPad.

As one reviewer said, “Finally, an economics book that is neither dull nor inscrutable and won’t put you to sleep. This little gem can turn all of us into sophisticated and educated citizens”.  I agree. 

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Opinions are those of the author and not necessarily those of Raymond James.  This is not meant as an endorsement of the listed material by Raymond James.

Where Did It Go?

Do you find that you ever have too much month at the end of your money? Be honest, in the blink of an eye, extra money seems to vanish. For those still in their earnings years, one of the keys to accumulating wealth, thus achieving your financial objectives, is to stop the disappearing act. Transfer dollars from your monthly cash flow to your net worth statement by adding funds to your savings accounts, taxable investment accounts, and retirement accounts (such as employer sponsored 401k and 403b accounts) and IRA’s (Traditional or ROTH).  Another smart move is to use funds from your monthly cash flow to pay down debt … also improving your net worth statement.

Saving money and improving your overall financial position is easier said than done.  The truth is that saving money is more than simply a function of dollars and cents; it requires discipline and perseverance.  You may have heard the strategy of “paying yourself first”.  The most effective way to pay yourself first is to set up automatic savings programs.  The 401k (or other employer plan) is the best way to do this – but you can also establish similar automated savings plans with brokerage companies and financial institutions such as banks or credit unions.

Just as important, be intentional with your 2012 spending.  Rather than thinking in terms of a budget (which sounds a lot like dieting) – think about establishing a “spending plan” instead. Planning your expenses as best you can will help ensure that you spend money on the things that add value to your life and should help keep your money from mysteriously vanishing at the end of the month.

For a free resource to help track your cash flow email: Timothy.Wyman@CenterFinPlan.com

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

This is Not Your Mother’s Retirement

Women are redefining the face of their retirement, especially when compared to generations before.  In 2010, the US Bureau of Labor Statistics reported that women comprised 47% of the total US labor force.  That figure is forecasted to grow to 51% by 2018.  Bye-bye glass ceiling. 

One result of this growing trend for women is that many are choosing to work outside the home longer than their mothers and actively pursue interests such as travel, volunteerism, and higher education.  Add increased longevity to the mix and it is not a stretch to understand that in addition to hopes and dreams for a healthy and happy life, living longer means retirement will cost more. 

Envisioning a future retirement and the costs associated with bringing your personal retirement story into focus can seem like a big task (not all that different from starting an exercise program, really).  As with any important goal the most important part is to write it down.  When you are ready to set goals and get results a financial plan is your “go to” document for all important financial decisions.  

The good news is that women are heeding the call for more active financial planning.  With more education and greater participation in management and professional occupations than ever before, women now also have more reason to learn about the value of personal finance and financial planning.   

Here are three important areas in the financial planning process that tie money to quality of life. 

1.  Don't Wait

• Follow your dreams -- they know the way
• Start now -- don't assume financial planning is for when you get older.

2.  Consolidate

• Even if the individual areas of your finances are under control, you gain an advantage when they are pulled together.
• By viewing each financial decision as part of a whole, you can consider its short and long-term effects on your life goals.

3.  Balance is Key

• Re-evaluate your financial plan periodically and adjust along the way.  Life events frequently interrupt an otherwise perfect plan.  Incremental adjustments along the way keep you headed in the right direction.

As you begin to dream and plan for your own future, I am reminded of a favorite quote:  Your imagination is the preview to life’s coming attractions.  Albert Einstein

Tackling Your Credit Card Debt

Do you watch the Super Bowl for the game or for the commercials?  For me, it really depends on which teams are playing, but I can’t deny that those million dollar ads often keep me in my seat through the commercial breaks.  This year, Comcast reports that advertisers will pay about $3.5 million for a 30 second spot, but that figure seems like a drop in the bucket compared to $798 billion…that’s the amount Americans now owe on their credit cards.

Recent released Federal Reserve data indicates that consumer borrowing is again on the rise.  With increased spending in the last quarter of 2012, U.S. consumer credit card debt has now reached a staggering $798 billion.  In my last post, I recommended that each of us should access and review our free annual credit report at AnnualCreditReport.com.  If your credit report shows that you have credit card debt that contributes to this enormous U.S. consumer debt total, now is the time take action!

In the spirit of the upcoming NFL Super Bowl, now is the time for you to tackle your own credit card debt.  Follow these steps to move you down the field and toward the goal line of a (credit card) debt-free future:

(1)  Huddle up. Assess your current credit card debt status.  Use your credit report to gather information on your outstanding credit card balances, interest rates, minimum payments and due dates.

(2)  Review your playbook.  Assess the minimum payments on all outstanding credit cards and make sure cash flow allows you to stay current; determine if/how much cash flow allows for more than minimum payments.

(3)  Narrow down your potential plays and make the call.  Check into the possibility of combining outstanding card balances to a card with a 0% interest or at least one with a lower rate.  Determine your strategy for tackling outstanding balances.  From a purely numbers perspective, you will end up paying the least by directing allowable cash  flow to making extra payments on highest interest rate cards first.  However, you must choose the strategy that keeps you moving forward, so if paying off the smallest card first (even if the interest rate is lower) makes you feel like you’re making the most progress, that may be the best strategy for you.

(4)  Keep moving forward by avoiding penalties.  Keep making payments against your outstanding debt AND avoid moving backwards by charging more.  Put your credit card spending in time out until your credit card debt has been paid down.

As Tim Wyman mentioned in his recent post about your Net Worth, one way to positively affect your financial wealth is to decrease your debt.  Set yourself up to score on your Net Worth and plan to tackle your credit card debt in 2012.

Source:  http://online.wsj.com/article/SB10001424052970203899504577130940265401370.html

Keep Score with Your Own Net Worth

In my January 4, 2012 post I shared nine steps to get a start on improving your financial health in the New Year.  At the top of the list was:

Take score: review your net worth as compared to one year ago

I must admit, I don’t find myself playing too much golf these days.  However, when I do, I keep score to see how I am doing. A net worth statement is your financial scorecard.  In its simplest form, your net worth statement lists what you own, subtracts what you owe, and the balance is called your Net Worth.  While there is no ideal Net Worth, it certainly is better to have a larger positive Net Worth – thus owning more than you owe.  Next to establishing personal financial objectives, an evaluation of what you own and owe is probably the most important ingredient in creating a plan your financial future. 

From the information contained on your Net Worth statement, you can measure whether or not you have sufficient liquidity, calculate your debt/equity ratio, review the nature and diversification of your assets, and determine the impact of federal estate taxes on your estate.  Your Net Worth statement is also used in your Financial Independence analysis and in evaluating your insurance needs.  With proper planning, discipline and careful monitoring, your Net Worth is likely to appreciate in value over time. 

Even in a year when investment returns are flat, your net worth can increase if you are saving money and/or paying down debt such as a mortgage, college loans, auto loans, or dreaded credit card debt.  There are many resources online to help you keep score.  Even better yet, you can work with your financial advisor to begin tracking your progress. 

Schedule a Check-Up with Your Credit Report

As the famous American Proverb goes, “The best things in life are free”.  If you’re thinking a vacation home in Key West or a new sports car, then the Proverb might not ring true for you.  However, if one of your resolutions for 2012 was to get financially healthy…I have great news for you!  The annual credit report offered by the U.S. Government is FREE.  

AnnualCreditReport.com is the official, and only really free credit report that each of us can access on an annual basis (any of those other “free” sites that ask you to enter a credit or debit card may not really be free; be careful to read the fine print on such offers).

Your credit score is one of the key factors in determining your qualification for loans such as mortgages and car loans.  Even more than that, these days your credit score can be considered when you apply for life insurance or apply for employment!  Now, more than ever, it is important to make sure that your credit report is accurate.

Here are a few simple tips for reviewing your credit report:

(1)    Review the accounts listed.  Since accounts will remain on your report for up to seven years after they are closed, you may have inactive accounts listed.  However, if there are accounts listed that you don’t remember opening, you should contact the vendors immediately to investigate.

(2)    Review account limits and balances.  If your outstanding balance is more than 25% of your available credit, this could hurt your credit score.  Remember that the balances and or limits appearing on your report could be up to 30 days behind.

(3)    Review late payments on the accounts listed.  If there are late payments listed that you believe to be incorrect, contact the creditor immediately to clear up the discrepancy.  Late payments can adversely affect your credit score.

(4)    Review the entire report, including former names and addresses.  Make sure that any incorrect information is corrected –  if your credit report was somehow associated with someone else with a less than stellar credit history, you could be getting penalized for someone else’s credit miscues.  Contact the appropriate credit reporting agency to correct any errors.

Start the year off right by getting a check-up on your credit report.  Visit AnnualCreditReport.com today.

My next post will provide strategies for tackling outstanding credit card debt.

The Genetics of Saving

For all of you that find saving money for future goals a challenge – don’t worry – its genetics!  At least that’s what a recent study seems to suggest.  Stephan Siegal, assistant professor at the University of Washington, Foster School of Business in Seattle, concludes that based on his research that “genetics is the single greatest determinate of an individual’s propensity to either save or spend.”   Professor Siegal’s research and conclusions are sure to draw interest from the many individuals and advisors that just might think his explanation is a bit too simplistic.                                                 

In working with individuals who have accumulated the necessary wealth to meet their goals, such as financing a college education or funding a successful retirement, I have found that saving money is more than just dollars and cents.  Becoming a good saver (and meeting future financial goals) requires discipline, perseverance and sound strategies such as systematic savings plans like 401k’s, 403bs, and other automatic investment plans.

So, the next time you buy the 52” HDTV instead of fully funding your 401k blame your genetic makeup!  And then make sure you schedule your annual meeting with your financial planner to make sure your on track to meet your short and long-term financial goals.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.