Making Cents

A body in motion stays in motion – so get moving

I can’t even tell you how many times I’ve heard this comment in the past few months.  “I’m going to wait to get my financial house in order when things return to how they normally are.”

To that, I must ask, "What is normal?"

Is refinancing your home so you can buy another to strike it rich on that leveraged piece of speculative property normal?  I don’t think so.

Is the unprecedented bull Market from 1982 to 1997 normal?  I don’t think so.

Is "sign and drive" your life away with brand spanking new wheels normal when you have to borrow to send your kids to college?  I don’t think so.

Is a bank giving you a mortgage to buy your dream home without any verification of your earnings or assets normal?  I don’t think so.

Is just showing up for work enough to have your business prosper and grow or for you to get a promotion?  I don’t think so

So I ask you, what is normal?  And if you agree with my prior comments about what is not normal, what exactly are you waiting for?  You surely can’t be happy with earning less than 1% on cash deposits?  You surely can’t think that what you earn on your money is the only part of your financial life that matters.  You surely can’t think that mortality is something that may hit you some day. You surely can’t think that your business is in the toilet exclusively because of the current economy, and that it will come back when everything else does

Our economy will stay in the crapper as long as people have these rose colored views of how, when and what they are going to do to get out of this financial mess that we are in.  Do something constructive for darn sakes.  What can you do?

• Pay down debt.
• Save for future needs
• Re-balance your portfolio
• Invest in

  America

• Speculate only when you can afford to loose
• Teach your kids some of the tough lessons that boomers are learning for the first time as they approach age 60
• Reinvent yourself and your business
• Be the person that you want to see when you look into the mirror

Everyone looks at the WW I and II generation as the true superstars that they were.  They are admired for their courage, tenacity, loyalty, family values, and toughness – both mental and physical and last, but not least, their willingness to do what it takes to move up a notch.  Is there some of that ethic of old days needed here for us spoiled boomers and privileged, politically correct workers of the 21^st century.  I think so.  I, for example, hate to paint.  But if I lived in a house that looks like it just came through a war – you bet your butt I’d be out there with a scraper and a brush to make it look good.

For all of our benefit, please stop sitting on your butt waiting around to see how the stimulus bill will help you, or how some ambulance chasing tort lawyer can help you get what is rightfully yours.  If you have a job – love it or leave it.  Don’t be the one sitting around so worried that the next pink slip is yours.  Adopt the attitude of gratitude that your unemployed neighbor would have if sitting in your seat, if only for a temporary few weeks.

JFK said it best years ago, you know the “ask not what your country can do for you" talk.  Well, it is time to hear it again, but in my words.  Stop hanging around with your head down or looking for handouts, and get off your butt and make something happen for you and those that you love.  And do it today. 

How the Stimulus Law May Affect Your Wallet

The famous stimulus bill that was just signed into law by President Obama contains many tax breaks for individuals. As always, there are phase outs for high-income taxpayers, but some of the breaks will even help high-income earners. I can’t cover all of the provisions in this short space, but I’ll cover a few of the bigger incentives.

The most interesting of them is the first-time home buyers tax credit. It’s most interesting because if you bought 2008, and rushed to get that done for the filing of this year’s return, you are not going to feel very good. Last year, the feds instituted the first-time home buyers credit for homes purchased after April 8, 2008. That was good news for those who fell into that category – it meant a free $7,500 loan from the government. Those taxpayers will begin repaying it without interest when filing their 2010 tax return over a period of 15 years.

The new credit just signed into law does three things very differently. First, the credit is raised to $8,000. Second there is no repayment provision. And third, the time frame to purchase the home is extended until Dec. 1. The real benefit here is the fact that the credit does not have to be repaid. You will owe a portion of the credit back if you sell the home or no longer make the home your primary residence within three years of the date of purchase.

The stimulus bill also includes an expansion of the Hope scholarship credit. It is changed for tax years 2009 and 2010, and it increases the amount of the credit and the eligibility requirements. The maximum credit per student rises from $1,800 to $2,500 and it extends eligibility from the first two years of post secondary school to four years. The full credit is available for single taxpayers making less than $80,000 per year, and gets phased out between $80K and $90K. For married taxpayers who file jointly, the phase-out levels are twice the levels for individuals.

We will also be allowed a deduction for the sales tax paid on the purchase of a new car. The sales tax deduction will be deductible for up to the first $49,500 of the vehicle’s purchase price. The deduction will be phased out for single taxpayers with modified adjusted gross income above $125,000 and married filers above $250,000. This is, of course, a nice benefit as long as you can get the car financed or write a check for the purchase.

Ask Right Questions When Looking for Financial Planning

It’s true, anyone with a pulse can call themselves a financial planner, and many people have hired planners who later turned out to be salesman who didn’t give a darn about their long-term plan. But that doesn’t mean that you should avoid hiring a planner: you just need to know how to find a good one.

Be sure to ask for references. Don’t be afraid when you call the references to ask about more than their satisfaction with the planner. Ask about the services the planner has performed. Ask whether the planner helped with the estate plan, the portfolio, the business succession plan or whatever else is important to you. Also, ask if the planner regularly reviews and updates the plans.

Ask about the financial planner’s credentials and experience. You don’t want to hire a rookie and you don’t want to hire someone without credentials. I’d see that the planner has the CFP designation or some other advanced designation that shows some training and experience. Acceptable alternatives may be CLU, ChFC, CPA or JD. These credentials have codes of ethics that the certificate holder must follow. And remember, just because they have a credential or two doesn’t mean that they have years of experience. Ask specifically how long they’ve been doing planning and see if that agrees with the references that they give you.

Ask if they are registered with the state or SEC as an investment advisor. It sounds weird, but the actual registration for financial planners is as an investment advisor – even if the planner is not an investment specialist. Also ask to see part 1 and part 2 of their form ADV. Form ADV is their registration form as an investment advisor.

Ask about conflicts of interest. There are debates over whether you should work with a fee-only advisor or one who also accepts commissions. I’m not hung up on the fee-only thing, contrary to most journalists. But I am big on disclosure and undisclosed conflicts. There are many firms with independent sounding names who are really an insurance agency in disguise. It’s not that an affiliation with an insurer makes the planner bad. It’s just that many of those insurers limit the planners’ access to products and require the planner to try to place the clients insurance with that company first.

Financial Plan Needs More Than Just Investments

When people think about financial planning, the discussion almost always shifts to the stock market and ailing 401(k) plans. While what happens to the market may affect your financial plan, things besides the market can also mess it up.

Goals and dreams vary for each of us. For some, it may be a comfortable lifestyle or retirement. For others, it may be the education of grandchildren, reducing estate taxes or making sure that their family is financially solvent in the event of a premature death. For many, it is all of the above and then some.

A good financial plan will take a look at six major areas of your financial life.

It will look at your cash flow - income and expenses today and those expected in the future. Cash flow is probably the most significant issue when it comes to planning. In fact, reckless spending or poor income planning has caused just as many problems for Americans as a losing portfolio.

The plan should take a careful look at risk management. What can happen that would really mess up your long-term plan? You could die prematurely or become permanently disabled. Your home could suffer an uninsured or undercovered accident such as frozen pipes, floods or injury to a visitor.

Your plan should address taxes. Everyone thinks they are doing whatever they can to minimize taxes, but I’ve seen some stupid tactics and some of the better ones ignored by people who think they are doing a great job.

Your retirement planning should be addressed well in advance of your planned retirement. This may include how much to save, where to save it or what type of retirement may best suit your needs.

Estate planning is also a must in any financial plan. A good estate plan considers your incapacity or disability - as well as what happens when you die.

And finally, a financial plan does include a thorough review of your investments - including a look at your tolerance for risk, what you need to earn to accomplish your objectives and your exposure to different holdings.

You can do your plan yourself or hire a qualified planner. Don’t kid yourself. Just because you spend Saturdays and Sundays working on your portfolio or have more money than you need doesn’t mean that you have a financial plan.

What to Look for if You're Refinancing

Are reports of the death of the mortgage market largely exaggerated, or are we witnessing one of the fastest resuscitations in the mortgage industry’s history?  This has a little to do with the largely touted TARP (Troubled Asset Recovery Plan) that the feds have been implementing and a lot to do with the fact that institutions are sitting on a lot of cash that would serve them well to get out on the streets.

While it is much more difficult to get a mortgage, it may be worth the trouble if you are stuck in a higher rate or with terms that you’d like to change.  Before you can participate in this coming refinance boom, there are a few things that you’ll need to look out for.

First is the value of your home.  For the most part, the new lender will want the loan to represent 80 percent or less of the current fair market value of your home.  There are some exceptions to this, but beware that private mortgage insurance will be necessary and that may mitigate the  benefits of a new loan.

Existing second mortgages or equity lines of credit may need to get paid off first.  In order for a new loan to get properly recorded, the existing second mortgage holder will have to cooperate.  In past years, this has typically been no problem.  But in today’s market many lenders of equity loans desperately need cash and may not consent to allowing your refinance.

The next, and very significant issue, is your credit score – better known as a FICO score.  Mortgage brokers are telling me that lenders really want to see a FICO score around 700 or better to qualify for the lowest rate.  To learn about your credit score, go to freecreditreport.com and request a report from each of the big three reporting agencies.  You’ll have to pay a nominal fee to get your score, but it may be worthwhile.

While your credit score at the time of application is extremely important, it is not something that remains static.  You can improve your credit score with a little time and effort.  Some of the tactics are quick and easy – such as correcting errors on your credit report.  But others, like paying down credit cards, may take some time.  Talk to your local bank or favorite mortgage broker about your situation and how you stack up.  If you need help with credit improvement, there are law firms around the country that work exclusively on assisting people improve their score.