Monday, January 31, 2011

Are your finances you drive Crazy?

3 ways to relieve stress of money

Make money concerns rob you of a good night's sleep and set off aches and pains in your health — and relationships? Are your shoulders — and your life — sagging under the crushing weight of financial responsibility?

If you're nodding your mind-boggled head, then it is time to rethink that are driving the bus. Before the wheels come off, scroll in the driver's seat and steering towards a new direction. Try these three easy ways to lighten the workload of managing personal finances to enjoy a more relaxed.

See: Know where you are and what you have is less stressful uncertainty and to imagine the worst. Go ahead, open your eyes to your finances. It has a good time to get a snapshot of the financial picture with accompanying the financial statements on the target mailbox. Clear out a workspace (the kitchen table will do!) and order your financial in piles of stuff: Bank statementsInvestment statementsBillsInsurance statementsTax information (* bonus: this will help you get organized to file taxes, too) to identify your preferred at least most of the places to do business, and why.Simplify: think "HGTV Home clean and de-clutter your home finances. Most of us have multiple IRAs, 401 (k) s and investment accounts because you tend to change jobs frequently. Explore how it can reduce the number of accounts without sacrificing services. Consider the transfer of all or most of the accounts for enterprises "Favorites". Consolidate your financial accounts and reports will save you time and effort and perhaps costs. Large accounts and loyalty are often rewarded with lower costs.Opt for line versus paper statements and go "green". You'll save trees, free space in your CAB files and reduce the time crushing obsolete information.Recurring bills set to auto-pay. If you are worried about the control, set a repetitive invoice online automatic payment to your Bank (not the beneficiary) that control and can change at any time.Share: there are many jobs involved in managing home finances, that there is no wonder finances can be overwhelming. Check it out: pay bills – monthlyRenewing – annuallyOverseeing insurance investments – at least, tax quarterlyFiling – annuallyRecordkeeping – monthlyLegal – periodicallyMost of us taking a divide and conquer approach to running our lives. See if you and your significant other can divide work or take turns in Office. Not only reduces the burden-sharing, but also allows everyone with information and knowledge that are essential, especially if there is a day on our own.We make decisions every day even do it ourselves or hire and outsource it. Some of us mowing our lawn and shovel our paths, while others hire. To decide if DIY vs. outsource is right for your life, let your time, talent and interest in the management of your finances be your guide.

Hey readers, talking about sharing… What helps you manage stress?

karinMaloneyStiflerKarin Maloney Stifler, CFP ?
True wealth advisors
Hudson, OH

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The importance of diversification

Last week a friend and I were catching up on life over lunch. This particular person happens to be an extremely knowledgeable investor and he enjoys generally trying to block me on what might happen with the market economy, interest rates and the like.

And while he knows my feelings on predictions, we went to chat about what's happening in the world; and, various circumstances may or may not mean for different investments.

At one point I asked if he was diversified, or had a plan, anything can happen.

"My wallet nicely spread over more than ten stocks. I'm diversified. "

And on a great Caesar salad, I heard a story familiar about the value of "putting all your money in one basket and watch that basket." I've heard of new investor-extraordinaires that called the last recession exactly when the market, and as Warren Buffett's Berkshire Hathaway owns only a handful of stocks.

But beyond the same conversation we had several times before, there was something else I wanted to discuss that day; talk about a deeper reason for his need to know what the market can forward and could detect a level of concern that is not always evident in our past.

You see, my friend has a normal retirement age and has been outside the workforce for the past years. He returned to school to pursue an independent certificate in a field; He became an honors graduate. The conversation we had begun to flow from investments as its original plans involved his work again operate retirement.

We went to discuss that while he is still drawing of his portfolio, there is an increasing likelihood that he would soon. There are daily concerns on any number of things that can cause this to happen; a car engine on its last legs, a bakery that needs replacing. And while he has his health, that was also another issue of concern.

He knew that he had saved a decent amount during his career before, but not as much as he could or should have. Because of anxiety during the recession, he pulled the market near the bottom and returned late, after most of bounce.

I went and shared with him how can we have our disagreements when it comes to investments, but no matter what beliefs, ideas or philosophies an investor has, for the people the diversification is critical. Was the number one reason for his fears that I said to him; his retirement plan had turned into a bet on which stocks are success stories, when the odds (and their own history) were not in his favor.

Still skeptical, he presented his case and be nervous about losing, he fought all their points for me.

Commentators are saying the bonds were in a bubble and invest in hedges … inflation, but of course there was no inflation still talk about. And, it seems that the economy will continue to do so should bad shot out of my stock ... but the market has had two years of growth above average. Certainly not growing internal Stock compared to foreign companies … but is a global economy and look at the problems that are eating in Europe.

My friend's answer to his financial dilemmas fell behind on getting everything right in the market on an almost daily basis. He was watching his performance on a daily basis, because his timeline or preference to having cash in investments that can change quickly.

Money managers that he watches on TV can have a bad week, month or year and may still be high in their profession. Institutional investors which research he law does not have to worry about unexpected auto parts or health concerns.

As I thought about what else could I say help, what came to mind was a simple alternative thinking about investments. Instead of an all-or-nothing, watch your savings in a more ' approach ' portfolio.

A approach to portfolio more involves looking at the different investment needs within the overall structure. Image of a different bucket for each objective only that you have for your money — an example in this case as a separate portfolio for each year of retirement — with all the set of buckets that make up your portfolio.

Not knowing, for the next four years, my friend would need to supplement his income to $ 5000 for Board and lodging and $ 3,000 as a gift to pay for the teaching of a nephew, he would ever invest that combined $ 32,000 in the market. If your car will not yet five years, which is another goal to add that to the conservative piece as well.

I don't know if it helped, but it seemed as if there was a ' ah hah ' moment where the risks he was taking the part of his money that he had to have absolute faith would be available for use when it needs it. And, that's why issues of diversification.

robertSchmanskyRobert Schmansky, CFP ?
Financial Advisor
Healthy capital, LLC
Royal Oak, MI

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Divorce and taxes

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January 28, 2011 by David Bergmann, CFP?

Besides the emotional and relationship issues that divorce presents us with, understanding the tax issues associated with getting a marital dissolution can be challenging. The good news is that where divorce costs might typically not be deductible, legal advice and representation surrounding matters of ‘tax’, ‘investment’, or ‘business and/or production of income property’ involved in the divorce will allow for deductibility of those related ‘divorce’ expenses. The other good news is that, generally, ‘transfers incident to a divorce’ are not taxable events as they have similar transfer rules as lifetime gifts of property where basis and time of property being held by the transferor (donor) are carried over to the new owner, the donee in the case of a lifetime gift, or in the case of marital dissolution, the ex-spouse.


For example, you and your ex owned your personal residence together and now the court gives you, spouse 1, the home in the settlement. You both paid $100,000 for your home and it is now worth $250,000. Your ex-spouse, spouse 2, would have their name removed from title and the home would transfer without income tax consequences to spouse 1. The home, whenever it sold, would have been considered to have been owned by the selling spouse, spouse 1, for both the married and post marriage time periods in aggregate. That would help in satisfying the two years of ownership rule that gives us special non-recognition of gains on the sale of our property of up to $250,000 for a single person. So, if the aggregate time of ‘use and ownership’ was at least two years and spouse 1 sells the home for $350,000, the $250,000 would be excluded from income.

Many times spouse 2 is told to move out and spouse 1 remains in the home until the youngest reaches age of maturity, graduates from school, or some other criteria, when the house would then be sold and the proceeds distributed to both of the previously married spouses. If spouse 2 remains on title until junior, age 6 reaches age 18, how is he or she going to get the gain exclusion, if a gain is made, since he or she would not have used the home as their personal residence since moving out pursuant to the divorce? The law qualifies spouse 1’s use as use for spouse 2 for purposes of satisfying the code section 121 gain exclusion. So 12 years later spouse 1 sells the home (spouse 1 and spouse 2 remain on title) for, say $600,000 (a $500,000 gain), both spouses would be eligible for the $250,000 gain exclusion under code section 121.

What about spouse 2 paying the home’s (spouse 1’s personal residence) mortgage interest and property taxes. Is that deductible by the non-residing-in-the-home spouse 2? Yes, for the same reasons as the previous paragraph (use), however, there is an overall mortgage interest deduction cap and that is interest upon $1M in ‘acquisition indebtedness’ and $100,000, interest thereupon, of home equity line of credit.

Oh, you still can’t stand the ex (spouse 2) and you would jump at the opportunity to get one last shot in. Well you just heard the ex and his or her new partner are selling the residence he or she was living in while he or she was paying for the home you are living in and he is going to realize a $250,000 gain on the sale of that residence. You promptly sell the home you are residing in with your child (assuming you aren’t legally bound not to) in the same year (or within two years) as he or she is selling their home and wham – only one gain allowed in a two year period, so he or she would be taxed on one of their $250,000 property sale gains.


As a married couple spouse 1 and spouse 2 filed their tax returns with a filing status of married filing joint or married filing separately. Once they are divorced they are considered divorced for the whole year just as they were considered married the whole year no matter when they got married during the year they married way back when. Well if you are divorced for the entire year who is going to report the income that spouse 1 and spouse 2 have reported to them (1099’s, W-2’s, K-1’s, etc.) for the tax year they got divorced in?

The rules are different for common law states and for community property states. Common law states require ‘equitable distribution’ of the income whereas community property states require that you follow your community property law state’s rules of ‘community income splitting’. Those ‘community income splitting’ rules require that divorcing couples split their income up to the day of the divorce and thereafter their income is separate. Sometimes spouses in community property states have ‘separate’ property. Separate property income in community property states is taxed differently depending on what community property state you live in.

You may be considered divorced for purposes of these rules if you are an ‘abandoned spouse’ or you are legally separated as defined in your state of residence. In this case you may be eligible for head of household or single filing status.


While we were married we took on our tax returns our children as dependency exemptions enabling us to derive tax deductibility, and hopefully actual tax benefit, from deductions for their care and upbringing, like education and medical expenses. We may have received a tax credit for each child and we may have received a tax credit for dependent care because both husband and wife were full time employed. What happens when we divorce?

The divorce decree determines custody. If it does not, then custody is determined by which parent has physical custody of the child for the greater portion of the year – the ‘custodial’ parent. The custodial parent gets the dependency deduction. When agreed, the noncustodial parent most often gets the dependency exemption by an executed IRS form 8332 provided by the custodial parent. 

The child tax credit goes with the dependency exemption – the person taking the dependent as an exemption on their return gets the child tax credit.

The child (dependent) care credit is available only to the custodial parent and strict rules apply regarding ‘qualifying amounts paid’.

Unlike alimony, money that is paid as child support is not income to the recipient and not deductible by the payor.


State laws control property divisions. As was stated earlier there are community property states and common law states so exact rules about divorcing spouse rights to retirement account values are controlled at the state level with ERISA rules and other Federal statutes overlaying them. With regard to marital dissolutions and the court order directing a plan’s custodian to assign plan assets to an alternative payee that is accomplished by a ‘Qualified Domestic Relations Order’ (QDRO). A QDRO is required to be accepted by the plan administrator unless the QDRO requests that the plan assign those assets in a manner or payout methodology that the plan does not provide for.

IRA’s, SEP’s, SIMPLE’s, non-qualified plans and annuities do not have a QDRO requirement. Only plans that are subject to the rules of ERISA require the QDRO. Distributions pursuant to a divorce (QDRO or non-QDRO court ordered ‘assignments) from any plan types are free from the 10% premature distribution penalty; however income tax may apply to all before tax contributions distributed from the plan if not rolled over. The spouse from whose plan the assets are distributed from is not considered to have made a distribution for which they would have to pay income taxes or incur a premature distribution penalty.


An equitable divorce is not one that merely splits total fair market value of assets in half. Rather it should be one that takes into account after tax considerations of all assets in question. Don’t take the $1,000,000 pension account and give the ex the $1,000,000 home that you just paid a $1,000,000 for! The pension is entirely taxable when distributed whereas the home could be sold with no tax liability.  

Alimony received is income for purposes of funding an IRA; don’t forget that, especially if you no longer are a beneficiary of the ex-spouse’s ongoing retirement plan contributions and growth and you need to jump start your own retirement plans!

What is separate property versus that which has been accumulated during the union and considered jointly acquired or community property? If we have intentions of insulating from our marital estate those assets that we acquired prior to marriage or were inherited or gifted to us during our marriage, so that they remain ours should a dissolution come about (or a legal claim be made as a result of an ‘act of liability’ of the ‘other’ spouse), seek legal counsel on ways of preserving the independence of those assets from inclusion as consideration of an asset of the marital estate before you get married or when you receive that inheritance or gift so that you can make informed decisions on taking action to achieve your goals and objectives with respect to the rights and or claims to those assets.

I will be back with you next blog with more on property titling and beneficiaries as I promised. Thanks for reading…

David Bergmann, CFP?, EA, CLU, ChFC
Managing Principal
The David Bergmann Group
Marina Del Ray, CA

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Sunday, January 30, 2011

You need some new years resolutions?

OK, we passed 1 January 2011, and we can get some serious financial planning for our financial future. Tax rules are in place for the next two years, so we have a little more confident today than what we had a month ago.

While it is very important to go through the financial planning process to determine what is your personal situation and what actions are most appropriate to meet your goals and objectives, the list of savings and increase in wealth are many times the same – what are the changes in the amounts to be allocated to each category.

When I see a client today, here's what I like my list of priority actions for the clients connected to the location where you want to save:

For those who are used to use the plan 401 k/403b/457 employer to contribute at least the amount required to achieve any contribution of company match. This company match is a free gift from your employer and the only way to get that correspondence is to participate in the program of the employer.Depending on your level of income, contribute to a Roth IRA if you are eligible. If your income is too high to use the Roth IRA, then contribute to a traditional IRA before and then convert to Roth IRA under current laws. If your adjusted gross income (AGI) is more than $ 177,000 for married couples filing jointly ($ 120,000 per individual), you must use the traditional IRA. The limit to help both IRA is $ 5,000 per person and $ 6000 if you become age 50 or older in 2011 If your employer provides a program of Roth, who is a good place to put your money in 401 (k).If you are able to invest more in respect of amounts needed to implement the items from 1 to 3, invest in a pool of passive of mutual funds, preferably in index funds, to keep the amount of income tax to the minimum, while you work.  There is no limit to what can be included in these funds, so that this could be the end of choices for you. This pool also provides you with the money you need should you wish to perform conversions of 401 (k)/IRAs and Roth IRAs need money to pay the tax man.Put extra money in the plan of your employer, to the maximum extent permitted by law under those programs. I have this down in the list option from those above because I like the flexibility of having money in the pool of passive. I am referring to is flexibility: sets better manage taxable asset growth now and into the future.Access to capital at all ages without risk of fiscal penalties that may occur when you make early withdrawals from deferred tax categories of your investments.

I have not specified what amount to each of these categories, because it is part of the financial planning process where you get to understand what your needs are for those activities, whenever you need the money and what are the other goals and objectives.

If you are self-employed, there would be additional places to save money as SEP-IRAs or standalone programs 401 (k). Each of these special rules and fiscal consequences, in particular between now and April 15, 2011, when you are determining the taxable income for the 2010 tax return. Within these programs, you get to decide how much you want to contribute to these programs based on what is your income for the year that impacts on duty will be what the tax liability. The limits for the self-employed 401 (k) are up to $ 49,000 annually or $ 54,500 if more than 50 years. Contributions to these programmes must be made before 15 April to be able to reduce taxable income in the amount you contribute.

In addition, the standalone 401 (k) requires that the work of paper to open the account needs to be done before the end of the year to which you will apply the contribution. While this means that you may not be able to have this problem for your 2010 income, this means that now would be a good time to set the plan for the fiscal year 2011. You can determine the amount of the fee when you are preparing your tax return in 2011 and know what is your profit and then the amount that you want to contribute to this plan.

There are many other aspects of how much to contribute to these retirement plans that may need to address, but what is certain is that he will retire someday, and when you want to make sure at that time that you addressed this problem now and not later. Just a few minutes to know what your employer provides as an incentive to start saving for your retirement goal and start putting some money away today.


Francis St. Onge, CFP ?
Total financial planning, LLC
Brighton, MI

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Monday, January 24, 2011

Cash Challenge

13 January 2011 by Saundra Davis

How much money is now in your pocket or bag? Go ahead, take a moment to check ... just go back to finish reading. In my classes I teach financial management is often the "envelope" as a method to set and stick to a budget. Of course there are several methods to set a budget-friendly, but we all know that the challenge is to stay within the limits of the amount of allocated budget. It is very easy to spend more than what we mean when we are spending "money" is a transaction with credit or debit card as opposed to cold, hard cash. In December I decided to spend a full week using only cash to an area of my budget. My thought was that I could see how much loss of expenditure I found and then decide what to do about them. I already had a budget so using cash would not be a problem, right? Well, as I learned quickly, that depends on the category of food and budget, has chosen.

Because it would rather do almost anything different from Cook, dining is an important factor in planning my meals weekly. My budget "food" includes dining out as food, so I have several restaurants serving good and healthy dishes at a reasonable price. Still, there is always room for improvement, when there are competing financial priorities so that this little adventure offered a perfect opportunity to trim that feed the budget a little longer to allocate the surplus of other things. The first couple of days were pretty; easy after all, I was flush with cash! How went the week which was to be a bit more selective about my choices. Decided that if I was going to do the last for the rest of the week would need to plan my meals for the remaining days rather than my usual method of waiting up to lunch or dinner and asking "hmmm, what I eat today?"

I quickly realized that "rigged" (intended) of the budget when it came to eat outside or snacking. I lived in my overall budget, so that wasn't really anything a minor change here or there to cover my food spending. By the end of the week that I had exactly $ 1.72 cents left in my budget envelope … this is food in comparison to my habit to go a little further every month. So, I learned a few things: 1) my food budget is a reflection of what I spend, and 2) I can easily cut the budget and redistribute a portion to another goal (I'm hoping to double my emergency fund this year).

Make money just adjustment was challenging and enlightening experience. I found myself paying more attention to whose voices were taxed on my shopping list and I was much more selective in my choices. I also found myself talking to small business owners on the impact of credit and debit card use has on their bottom line. According to the real cost of credit pizzeria local media site (not a big chain) pays $ 11,213 each year in fees of credit card processing, enough for a new delivery vehicle. And while the debt (using your PIN) cost less than their purchases, any savings in this economy helps them stay in business. This new awareness has given me a reason to use cash more often, especially at small businesses.

You may ask, "Where Saundra is going with this?" So let me get to the point, and Yes, even encouraged to increase your awareness of cash by selecting an area on your budget and using only cash to finance such expenditure. If you do not have a budget, start by deciding how much do you think there are currently spending or how much you want to spend on a particular line item budget and use that as the baseline. Day one, withdraw the amount you are entered in the budget and place it in an envelope and for the next 15 days (I'm starting a new category on 15th January) only spend the money in the envelope. Be sure to keep receipts in the same envelope, you can use them to decide whether and how you want to adjust expenditure at the end of the challenge.

If you let me know commenting on your category of expenditure in the comments below. I'll be checking back on January 30, to let you know how I did it with my new category ...YARN!

Saundra Davis
President & CEO
Sage financial solutions
San Francisco, CA

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Because you will need to retire?

Part 2 of 2

How much income you will need when I'm retired?

The income that I am talking about here is "guaranteed" elements such as social security and pensions that we gained from many years of work. All of us will receive social security benefits based on what we have earned and how many years we have worked. Some of you will receive a pension, even if this advantage is slowly fading from the scene as employers are moving toward contributions individual 401(k) deferred taxes or similar programs that remains for us to manage our.

For this blog, I used the SSA calculator to estimate what would be the benefits for the worker who had income this year in support of a $ 50,000 noted above. This puts the worker in the above category average for earnings so I used to build a history of 35 years of work required to calculate the expected social security benefits in retirement. The SSA uses the first 35 years of earnings adjusted for when he had gained to calculate what is your benefit. This is information that you receive each year from SSA when they inform which can be your benefits. (Background, these are part of the social security calculator by SSA that gives you the ability to insert the actual amounts of income each year or each precondition that you want. For this blog, I assumed the person was $ 55,000 this year that he put the above average income for social security calculator. Then backup the same amount each year to reflect how the income of the person would change over time.)

A retired person, today, those who chose to wait for their full retirement age would receive a monthly benefit of $ 1,861 ($ 1489 if elected to start it at 62 years old). This would be an annual income of $ 22,332. If there were no increases in more than 20 years, that would provide $ 446,000. An increase of 3% on average each year, the benefit would increase to $ 600,000. Over 30 years, the amounts are $ 669000 with no increase and $1,062, 000 with the annual increase of 3%.

Your spouse is also entitled to social security benefits. In this example, you would be entitled to a benefit equal to ? the husband because he hasn't had a history of the income of her own that could provide a superior performance. In this case the monthly benefit would be around $ 930 or $ 11,160 per year. This would provide $ 223,000 over 20 years and $ 334,000 in 30 years with no increase in inflation. With inflation, the amount would be $ 300,000 over 20 years and $ 531,000 more than 30 years.

Combined household income from social security would be between $ 669000 and $ 900,000 over 20 years and among $ 1,003,000 and $1,593, 000 more than 30 years.

For this article, I've assumed that the couple had no pension from their employer; If you have a pension, you have to factor in your plan. Most private pensions do not provide for an annual increase. If this is your situation, the calculation is rather simple – multiply the annual amount for 20 or 30 years to get what you get is the cumulative amount. If you have a public pension and provides an annual increase, then you need to factor in what will provide in additional income over time.

How much should I save to retire?

The answer to this question is a direct function of what we respond to the questions above two plus how we managed our investment portfolios during our life date as well as retired. The simple answer is that before we start saving, the more we have to save each year and the way in which we invest the money (conservative versus aggressive) much easier it is to have enough money to have an enjoyable and worry-free retirement.

Based on my couple, we can see that they have an income that will provide a significant amount of their incomes must meet their lifestyle, but will need income from their portfolio of investments to meet their needs. In short, they will need between $ 531,000 and $ 300,000 for 20 years (1.2 million social security spending less than $ 669000 or $ 900,000). If you think they will live 30 years, the numbers are between $ 897,000 and $ 407,000 (1.9 million of social security costs less than $ 1,003,000 and $1,593, 000.

If they did anything on their investment, then the amounts observed are what they need but that is a rely totally unrealistic. There are two components to the image of investment that you need to consider. One is the amount that they saved to date; the second is what can/will earn on this money going forward. Suppose they did 5% each year, the money that they saved per day that are retired. If they had $ 500,000 to start, this money would be the last 29 years if their security social media increases of 3% each year (the same increase as their costs increase every year). Increase your ROI at 6% each year and that they would have $ 255,000 left after 30 years. Become an aggressive investor (not my recommendation) and earn 8% and the investment balance becomes $1,434, 000 after 30 years.

If this pair has 600,000 dollars saved when they started the pension, the balance at the end of 30 years would be $ 385,000 rather than the negative balance mentioned in the previous paragraph. As you can see, there are several ways to get to that stage of rest comfortable and have enough money to bring to you through the rest of your life.


In this blog we have covered how to figure out what will be the total expenditure for a prolonged period of retirement of 20 or 30 years and the components of such expenditure.

We have identified what social security benefits at the same time. Finally we have identified what would be the required amount of investments and the investment returns have to be earned to cover the deficit between revenues and expenditures.

A note of caution to consider in this blog: I assumed that it would pay income taxes on the income side because they were investing in an IRA from your years of work. If this investment portfolio was in a Roth IRA or a taxable portfolio, withdrawals from these retired does not give rise to taxable income and social security benefits taxable would not even. This is fodder for discussion at a future!


Francis St. Onge, CFP ?
Total financial planning, LLC
Brighton, MI

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Flexible Retirement Finance

12 January 2011 by John Comer, CFP ?

Post-Retirement regulations

I was asked to give a retirement seminar to my extended family in a recent family reunion.  We attract four generations to our meetings a week, so that the debate had to be useful for people as young as old as 80 and 25.  I was a little disappointed with the result for the 70 and 80 years of age, because they don't think they could change anything.  They were academically interested but not seen any practical application.

It is true that your ability to adjust your retirement is limited or nonexistent after selections.  The ability to change your social security payment has recently been reduced as well.   Finally, life insurance and long-term care may not be affordable for most people to be 70 years.  (If I need insurance but would have a price before you abandon the idea.)  That said, there are a lot of areas where you can make changes.

The first step is to project revenues and expenditures to see how you're doing.  By comparing these new projections for original projections every few years (if your income is stable, more often if income varies much) will help you understand how the initial assumptions are good.  By comparing these projections in different scenarios can help you understand what adjustments have the greatest impact on your finances.

For example, as the finances would be different if the husband dies at 75 and his wife lives in 100 against his wife dying to 75 and her husband live to 100?  How you expect your finances to change if one of you was confined to a nursing home for five years in five years from now to leave?  What if the u.s. economy has gone through a period of ten years as of Japan without increasing the value of your investments?

As you examine the different scenarios, which, if necessary, run out of money before age 100?  What scenarios result in your not to meet all your goals?  What scenarios are fairly likely that you want to make changes now to protect your goals?

Changes that may be needed

The revenue and expenditure should be the first line of Defense.  You can increase your income or decrease your expenses?  Even minor changes to margin can have a major impact for many years.  But be sure to consider as well the main changes.

Different people have different objectives.  My father-in-law went to his house three times in the last ten years of his life.  His moves were not caused by financial considerations, but by changes of life — marriage, the desire to be near friends and decreased mobility.  My father wants to stay at his house for the rest of his life.  In your situation, could a change in your House free money invested in the House or reduce your expenses?

Do you have personal property that you do not intend to use for retirement, but could be used in a pinch?  This could be the equity in your home, a second car, figurines or other personal property.  Investigate whether these elements may be converted into cash if necessary.  Without moving, a reverse mortgage would stay in your House, after other goods were spent?  Can a family member buy House on an installment to give you cash enabling you to live at home?

Also look to your business, volunteering and hobby to see if any of them could be converted into an income producing asset or an expense reduction activities. If you Volunteers Help complete tax returns, maybe you could get a part-time job completion of tax returns. If you volunteer as an usher at theatre community, perhaps you could get paid as an usher at a local sporting event.  Are some of your creations good enough to sell?

If not what you have imagined that they would be your finances, there may be changes you can make at any age.  Some adjustments may be more appealing than others, but that's why you look at all the possibilities.

Planning for flexibility in pre-retirement

For those of you who have not yet retired, these ideas can help you plan some cushions in your finances.  For example, keep home out of your retirement projections as well, if the unexpected happens, you have additional resources.  Take out insurance if you do not have the resources to finance this spending potential of long-term care.  Plan for retirement so that you have a minimum level of fixed costs and maximise costs variable that you can adjust if necessary.  So you can plan in advance how could adjust to possible events, run some different scenarios with your finances.

Most important of all, start early.  If you start saving for ten years before the retirement pension, you must save 72% of your nest egg you want, but if you start to 40 years before the date of saving, you should only save 20% of your nest egg you want.  (Assume that annual contributions amounting to earn 7% returns every year.)  Investment earnings will contribute to the rest of your retirement nest egg in both cases.

For young and old, there are adjustments that can be done.  Planning, controlling and adjusting your goals will help you to achieve your life's commercial transportation.

John Comer, CFP ?
Comer Consulting, LLC
Plymouth, MN

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Sunday, January 23, 2011

Financial planning is not a Wayfarer game!

21 January 2011 by Mike Branham, CFP ?

I've always been a bit of a wanderer. From the day that I received my driver's license, I have enjoyed simply strapping on the driver's seat, and find a new territory. I started to learn some of the back roads in the area where I live, driving through the countryside for hours. Since then I am cruising back roads in remote areas of Northern Minnesota looking for things that I haven't seen before. Guided activities like how do I get in my daily work life, something to explore involved in travel outshines the thought of which could be the final destination.

This kind of wandering is not without its drawbacks. I was lost, blocked and high centered on registration paths, miles from home. As a teenager, a friend and I slid into a ditch in the midst of winter on a forest road and thought we could spend the night, finally getting pulled out, as the Sun went down. A solo trip on another way remote vehicle weight was too much for some ice on a big puddle of handle, and I ended up knee deep in degree 33 water pulling "iceberg" out from under your car before a request for help given relief. Obviously none of these occurrences resulted in disaster, and none have dampened my mindset of explorer.

But there are some situations in life where "Wanderer" is less attractive, and financial planning is an example. You don't have to have a map that every financial decision, or target, the details in your financial future. In fact, flexibility and adaptability is essential for any plan, as life has a way of throwing in some key inflection points that will test your original action plan. But it helps to have a general sense of why you are in the first place, or more briefly, what you consider to be the goals of your life.

Goal setting is the first phase of every good financial plan. If you are working with a planner, or choose to DIY, develop your key strategies and tactics will be based on some consideration to what your short-, mid-, and long-term goals. They could be as specific as "I want to send my child to a College of elitist in 12 years," or as General as "I want to be financially independent in my early fifties".

Objectives vary widely based on personality and lifestyle. For those who are married or have a partner, deep conversations with your significant other can be messy and enlightening at the same time. It is not unusual to find a husband and wife, while discussing the objectives in their initial meetings, to have different visions of their common future. In fact, one of the spouses often feel more like an objective which should surprise them. But this exercise is essential to further understand really what is important in life. Whatever your situation, do not calculate savings requirements, valuation of life insurance or statement must respect without due for goal setting.

Incredibly, most customers, who we meet with haven't given much thought to what they really want from their futures. Too often we find people giving answers "envisaged while not really fleshing out means that" retirement "or" financial independence ". It is surprising to me is the lack of imagination shown when we talk about what makes really a happy and are arranged as "settle" or sell yourself short in these discussions. Don't be afraid to dream in your pursuit of goal setting and sometimes to dream with guts!

As clich? as it might seem, the money is a means, not an end! It is up to you to dream and to define what that might be and shape the financial plan and the financial resources, to achieve the goals of your life. If you wander through the financial landscape, you may reach the Valhalla accidentally, but that is not a journey that offers the greatest chance of success. Take the time to find and set your goals and you increase your chances of success.

Oh and keep that phone handy! I need me pull off a hard place on my next adventure.

Mike BranhamMike Branham, CFP ?
Financial Planner
Cornerstone wealth advisors, Inc.
Edina, MN

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As financial advisors to hire and fire

20 January 2011 by Gelasia Steed, CFP ?

In November, I wrote about what to expect from a financial planner. Now that I have drawn to seek a complete ? Certified Financial Planner, you probably are wondering "How do I hire a financial planner and focus my current Advisor?"

Set your expectations

Before your consultant and planner of your next rental, do a little homework. Write everything you like and don't like your current consultant. Then, write everything you expect from a new Planner. From this list, should be able to come up with some great interview questions. For example, you are dissatisfied with the lack of contact from your current Advisor; you expect a call/email/meeting each quarter; the question is "how often do you typically call/email and meet with customers?"

Interview with potential new designers

Now that you know what you want, ask around for referrals and interview with 2-3 + planners. You want someone who meets your expectations, you can communicate with ease, and who you can trust. Be leery of intrusive consultants/designers who tout the performance and the "big customer" to impress and talk over your head trying to sound smart and professional – if they sound like a car salesman, move! It's easy being influenced by great speeches, but try to imagine how the potential planner might manage questions and calls. You will be comfortable asking the person questions? He or she spend time addressing your concerns? Your planner should listen to you, to address questions and concerns so that you understand and of course, demonstrate competence. It's your money, be picky and find a person of that trust.

Yikes, as you fire your current consultant?

Relax, you don't have to actually fire your advisor! The new Planner will set up your new account, you sign documents of transfer and get a recent statement from you. He or she will initiate and manage the transfer, which takes approximately 2 weeks. You cannot call or notify your advisor prior; Although, your Advisor may notice that your account has been moved. If you call your advisor prior, you don't have to answer the call; the signature for the work of the Office shall authorize the transfer. If you engage in a conversation, you may be asked why you are moving your account. You don't have to offer an explanation. Were dissatisfied and now they're taking control of hiring someone that best meets your expectations.

You will incur taxes or penalties by transferring your account?

Typically, companies move is, so you don't have to sell everything and realize gains or losses. Some owners of funds must be cleared for transfer. If it is a tax deferred account (for example, an IRA), to avoid penalties and tax transfer to such an account. You may have decided to convert the rollover your IRA or a ROTH 401 (k); and, in this case, you will have to pay taxes, but no penalty. Make sure you're clear before the transfer, so you have no surprises.

You should never stay with an Advisor/planner who are unsatisfied. Take charge. Is your money and your financial future!

Gelasia Steed, CFP ?
Investments Steed
FT. Worth, TX

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In the new year, focus more on your investment behavior more your investment

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January 14, 2011 by Joe Pitzl, CFP?

I recently attended a presentation by one of my favorite authors and speakers in the financial services industry, Doug Lennick of the Lennick Aberman Group. Lennick has long preached that one of the greatest flaws in mainstream financial theory is that it assumes investors will behave rationally. However, research has proven that investors, in fact, frequently will behave irrationally.

During this session, Lennick made a simple, yet profound statement that financial products are not necessarily the problem. It is the behavioral use of financial products that leads to problems.

Nearly a decade ago, Warren Buffett famously stated that derivate securities are “financial weapons of mass destruction”. As he always seems to be, Buffett was absolutely right: the root cause of the recent financial crisis can be directly linked to these products. What derivatives are is beyond the point of this article, so please bear with me and simply note that they are a financial product. At the end of the day, I submit that it was not the derivatives themselves that brought our global economy to the brink of complete disaster, it was the way they were misunderstood, misused and (un)regulated that caused the collapse. In fact, the derivative products themselves did exactly what they were supposed to do!

While everyone remembers Buffett calling derivatives financial weapons of mass destruction, very few realize that his company, Berkshire Hathaway, uses derivative positions extensively in their portfolio. A key difference between Buffett and Wall Street is the way they are used. Since making the more famous proclamation above, Buffett has also gone on record stating that “derivatives aren’t evil”. As noted above, we all know by now that he tends to use financial products more wisely than the average person.

Inherently, all financial products “work”. Whether we are talking about stocks, bonds, mutual funds, annuities, life insurance, derivative contracts, gold, or tulip bulbs in Holland, they do precisely what they are supposed to do. While I am certainly not advocating that you run out and start buying and selling derivatives contracts, I do believe every investor could benefit greatly by simply making better decisions about whether it makes sense to use certain products, how they use them, and to what extent.

Given that it is a new year, the annual ritual of making predictions and setting resolutions is in full swing. Every media pundit, financial expert, barstool adviser and brother-in-law has an opinion on where the country is heading, what to invest in today, what to sell and how we can save the planet from global economic collapse. I present two very simple predictions for 2011 (and 2012, and for every year from now through 2025 and beyond):

Financial products will continue to do exactly what they are designed to do.Investors will continue to make poor decisions with them.

I had the privilege of spending some time at a conference this fall with a colleague by the name of Carl Richards, who founded and operates the website Richards is quickly becoming a popular writer and speaker due to his uncanny ability to simplify personal finance with a napkin and a Sharpie. To summarize the essence of the last few paragraphs above, Richards drew the following sketch:

The inspiration for this drawing lies in the results of Dalbar’s studies on investor behavior. As he outlined so eloquently in his New York Times Bucks Blog post, investments continue to work, but investors continue to fall short.

While everyone else continues to try to predict where the DOW will be at year-end, or what the spot price of gold will be in 6 months, I recommend you focus instead on simply closing the gap outlined in the image above. The following quotes and commentary provide timeless advice from some of the best investors in history. These simple, yet timeless truths will guide you in your efforts to better manage your investment behavior in the year ahead:

“Individuals who cannot master their emotions are ill-suited to profit from the investment process.” – Benjamin Graham

The greatest factor in successful investing is having the ability to control your behavior and emotions. Research proves year after year that investments work better than investors. As outlined in the image above and substantiated in the Dalbar research, this “behavior gap” amounts to a whopping 5% on an annualized basis. This can be directly tied to people buying into certain funds or areas of the market when they feel good (prices are high) and selling out when they do not feel good (prices are low).

“Price is what you pay for something, value is what you get.” – Warren Buffett

Regardless of how great a company or sector of the market may seem, high relative prices reduce future returns. Conversely, low relative prices increase future returns. If a particular segment of the market has performed particularly well (as defined by its price increasing), it is ill-advised to buy more into that area. You are better off rebalancing out of those areas by selling your gains and using them to buy into the areas that have underperformed.

“The stock market has a very efficient way of transferring wealth from the impatient to the patient.” – Warren Buffett

Making decisions based on variables that are impossible to predict or control over the short-term lead to people buying into the market or selling out of the market at the wrong time. Remember that every asset has an inherent value that is independent of its price. Over time, the price will ultimately revert to the mean. However, it may take years to realize the value you anticipated when you purchased the asset in the first place.

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.” – Peter Lynch

A disciplined, diversified investment strategy does not exactly provide for great cocktail party conversation. We all know someone that completely knocked an investment out of the park at some point in their life, so it is tempting to try to get in on the action. However, chasing the hot performing investment category or succumbing to your emotions in a down market can sabatoge your ability to build wealth.

“I would rather be approximately right than precisely wrong.” – John Maynard Keynes

It has been said that the purpose of economic forecasting is to make astrology look respectable. Nonetheless, it is a favorite pastime of many investors as they try to seek the best area of the market to be in for the year ahead. Contrary to what most people believe, long-term investment success actually requires that you are comfortable underperforming certain areas of the market in a given year to more effectively manage risk over the long-run. The consistent compounding of returns over time leads to investment success, not hitting home runs in the short-term. You are far better off rebalancing out of a hot segment of the market a bit early than risk doing so too late.

“History teaches us that investors behave wisely…once they have exhausted all other alternatives.” – Steve Leuthold

The erosion of long-term returns and portfolio growth is magnified far more than most people believe on the downside. The following chart emphasizes the impact of losses:

            Portfolio Decline                     Return Needed to Break Even

                    10%                                                    11%

                    25%                                                    33%

                    50%                                                    100%

                    75%                                                    300%

The academic world loves to refer to investment risk in terms of volatility (short-term ups and downs). If you are a day-trader, volatility implies risk. As an investor, start to redefine investment risk as a permanent impairment of capital. A 10% decline will not permanently change your lifestyle and will provide a high likelihood of recovery. However, overloading your assets into a hot sector carries a higher risk of a crash. A 50% decline in your asset base may, indeed, change your plans dramatically. Taking a flyer trying to find the next Microsoft has a much higher likelihood of the bottom scenario than turning you into the next Bill Gates. It is incredibly difficult to recover from a big loss and most people never do.

As a New Year’s resolution in 2011, set a goal to achieve greater investment success by becoming a better manager of your investment behavior.

Joe PitzlJoe Pitzl, CFP?
Director of Financial Planning
Intelligent Financial Strategies, LLC
Edina, MN

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Misusing, Behavioral Finance

19 January 2011 by Chip Workman, CFP ?

Behavioral finance has been around for a long time, but it seems to be gaining a lot of steam in the popular press, which tells me more and more people are interested in knowing the brain often cantankerous relationship with money. The results of this trend are both encouraging and alarming.

To its best behavioral, can teach us to stop focusing on hunting returns and use energy to understand why we are wired to make poor financial decisions, how to manage our reactions to events of emotional investment and create less stressed, more successful investors who understand their financial goals and how to reach them.

I am a firm believer in dealing with what we can control. We cannot control the market, but we can control how we react to their ups and downs, as our investments and the related costs and advice how to spend and save. Since this change of focus is a step in the right direction and I hope this trend continues.

So, what is worrying me? Well, the financial services machine is starting to pay attention to this phenomenon. Without names, major wirehouses and other institutions are adding behavioral finance experts to help you understand what this means for their business model. The first results of these efforts are what is relative. In a video posted recently, one of these new team explained how they were using what they know about the behavior of building products to suit various styles of personality and calm the fears of potential client more. The goal seems to be focused exclusively on putting the customer in a product that facilitates their current concerns, not find something that is actually appropriate for your needs. It might appease them now, but it will probably cost them dearly in the long term.

This seems to be the continuation of an upward trend in society to find always the solution more immediately rewarding, ignoring the real problems. Here in my hometown, we recently watched our city leaders mull over a new budget, struggling for weeks with painful cuts in the various departments and find a clear answer for a majority. Their response? Passing a budget "balanced" and any cuts taking from reserve funds and borrow the rest. Incredibly pleasing to the senses, terribly damaging in the long run. The same can be seen across the nation to the detriment of our futures, our diets, our education and our overall value systems.

Many individuals and families have spent recent years live experience of how this may affect your personal finances. Allows greater interest in behavioral finance to disseminate the progress we made in the understanding of how we treat financial decisions. Use it for anything other than create better educated and more disciplined investors is a misuse of these tools and improves only these harmful effects.

The goal of good financial planning and advice not only to put the customer at ease on any title or the recent crisis has most interested them. The goal is to understand their relationship with money, their ability to tolerate risk and try to explain what amount of risk require to achieve their goals. While a frank and honest look at where booths can be stressful and frightening, having a path that will lead you to a realistic expectation of success is the de-stressor.

We must, of course, continue to explore the science of behavioral finance.  It is critical that we all understand the importance of their self-imposed roadblocks to improve our financial health. But, to answer those results with a fix is the wrong approach. As with all matters relating to health, ignore the miraculous for tried and true methods of a long and healthy life.

Chip Workman, CFP ?, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, Ohio

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Start the year as a sample of BCS

It is here.

One of the most important days of the year for sports fans. Tonight, of course, we know who will be able to claim the title at the national championship of college football for the following year; and what the school's students, staff, alumni and fans will be able to boast of their victory for many, many years to come.

Although my alma mater not participants, I'll be watching the Championship tonight with so many of you. How to judge the performance — catches which should have been caught, runs the incredible open field and the "what were they thinking" coaching decisions — I wonder about parallels to become a champion with our financial planning.

We all know that the amount of work that goes into being a champion to nothing. Also do a championship team, or make a good school or to address the most important financial topics that weighed on our minds in 2010. Samples have been successful because of the importance that they put on overcoming their shortcomings on a daily basis. The improvement is a constant state of mind.

It is interesting to hear clips of print samples. Successful athletes when asked about the big game, again not brag, taunt or predict. Tell you how they are focused on the practice of tomorrow, or the preparation necessary to win the big game, rather than the game itself.

There is an important takeaway here for our personal financial planning. Things like completing a budget, or create a financial plan, often require work for grunted and time to achieve. It is a frustrating process! And often our success is illusory because we focus on the game, rather than the steps needed to win.

Then, as we become bombarded with rumors about the economy, QE2 and all the new slogan that we learn in 2011, think what it would focus the athlete success to succeed … these factors outside of our control, or realm, daily activities and attitude that we can create?

I encourage you as we begin 2011 with great hopes and expectations, to write the things you can do on a daily basis to be more conscious about the areas of your finances that need improvement. It not to say watching your values or equity investment on a daily basis; teams don't win by just watching the film. But, be aware of the things that will lead to an improvement: spending habits, seeking at all times to increase efficiencies and improve your knowledge. They also don't focus on predictions (and here's why you should never), because the teams provided and sample are beyond their control (and never correct).

For help, take advantage of resources like the FPA site, blog or your local FPA Member for any further coaching that you need. Searching through the great content that was added during the last year for information and guidance to the financial challenges of life.

And good luck for your financial success in 2011!

robertSchmanskyRobert Schmansky, CFP ?
Financial Advisor
Healthy capital, LLC
Royal Oak, MI

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The greatest risk of the season

Here we are at the beginning of a new year. Decorations are put away until next year. The last of the holiday treats were eaten or necessarily were discarded. And we begin to return to your daily routine. Millions begin to ' dropped the ball on their resolutions. And many people open the last and largest of the holidays — the credit card statement.

All the joy and positive emotions surrounding the holidays during the night disappear under a thick blanket of burden. Then we start the process of digging out. And only when we feel like we are getting somewhere, 15 April rolls around. Only a painful experience of digging out just in time to discover that it is the duty of a significant amount of IRS is enough to make anyone to adapt their methods.

In 2008, 80% of taxpayers with adjusted gross income (AGI) under $ 100,000 tax overpaid, while only 66% of those has earned over $ 100,000. The average amount that those people unduly high income? 1

$ 10

Regret is a powerful thing. Some people indulge during the holidays, just because they plan to lose weight during the new year. Some people decide financial pain in January is inevitable and go all out in December as if that will make it more bearable,. Many taxpayers, in fact a majority of those who earn less than $ 100,000, actually try to more have taken out of their paycheck for taxes as a productive method to advance financially (or bail out indiscretion of last year). But everyone knows that a savings account gain 0% interest is really useless. And if the transport of the debt, you actually lose money.

But the disappointment can control us. Million people are living life unconsciously led by past regret. Every decision. Each unhealthy habit.

Behavioral economics suggests that many people will make good choices just to avoid disappointment. How to lock your money to the IRS to offset the financial pain of recent indiscretion.

But what about this year? Why not for the first time, do this year on those things that you can control? Today and in the future? Break free from the slavery of regret. Don't make promises you can't keep. Understand what you can control and methods to ensure the success of the Institute. Systems or responsibility. Think About It. Don't buy a treadmill, get a trainer that will be knocking on your door and get your face.

Read posts by Ed Gjertsen from 7 January and look for his post next month, to begin adding intentionality and freedom in your financial decisions. Prove to yourself that you are actually responsible enough to save your money instead of the Government to keep it for you until April 2012. Live in financial freedom.

Aaron Coates

Aaron Coates, CFP ? TOP
Financial Advisor
Valeo investment advisors, LLC
Indianapolis, IN

Posted in credit/debt | Tagged debt, risk, IRS, regret, behavioral economics, credit card, financial freedom | 2 CommentsBe the first as this post.

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What is your dream?

17 January 2011, by Lee Baker, CFP ?

As I sit here in the frozen tundra in Atlanta, my mind whirls by the events of recent days and next week. A murderous fury in Arizona, snow and ice storm that brings a great southern city to a standstill for a whole week, a memorial that mobilization our nation and the face of the little Christina Taylor green have absorbed me for the past several days. Christina picture and the story struck me the most because it was the same age as my oldest daughter. As Christina, Fire is his first taste of politics this year when she ran for Student Council. Even if his offer is successful, it will not shake his interest in the nascent government. As I watched the next week, a bit of an experiment popped into my next.

I called Fire and Lauryn upstairs and asked both the same simple question: what is your dream? Could be lying if I didn't admit to a bit of trepidation. Part of me was afraid that I would get a response like "dream of getting a new I Phone 4 G or Nintendo DS". Well both pleasantly surprised. Fire, responded by saying "I dream of world peace and not murder." Lauryn had me nervous at first but says "dream of having a lot of money so I could give to charities, and Haiti." Now that I've asked the question, I need to spend some time with the girls, helping them to realize their dreams.

But this blog is about you. What is your dream? Regardless of how my kids responded, is perfectly fine to be selfish. Indeed, it is best if you're a bit selfish. At least this way other bloggers and are able to provide some guidance. I have an idea of how help Lauryn to realize his dream. No matter what your dream, if you want to achieve, you got to start somewhere.

The first thing I would suggest that perhaps is the easiest but the most powerful. Write it down. Think of all the beautiful dreams or goals that you took during your life. Were any of them made without writing anything? If you're like most people, probably not. The time to put your dreams on paper gives permanence.

The second thing is to share your dreams with someone. This step is important because sharing your dream with someone (may be a spouse, friend, neighbor, etc.) will bring the issue of liability. Also I'll make you a deal. If you share your dreams with us, I'm pretty sure that (other bloggers and FPA) we will be glad to chime in with ways to help you achieve your dreams.

So how about it? What is your dream?


Lee Baker, CFP ?
Apex financial services
Tucker, GA

Posted in budgeting, financial planning, values | Tagged responsibility, Atlanta, dreams, dreams, Government | 1 CommentTim Lundmark

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