“Real World” Personal Strategy Blog

Roger Menden’s Big Idea: Pay For College AND Build Wealth?

08.18.14 PersIn light of events happening all over the place (but particularly in Ferguson, MO), I’ve been reminded of an eternal truth: The mind is like a parachute; it functions best when open.

Pretty sure Abraham Lincoln said that.

I’m kidding, of course — “source unknown”, but the truth is that while the social media activists, the media and those fueling the fire of argument on either side are increasing the volume of outcry, it’s difficult to say how much actual benefit that is ultimately bringing. Certainly there are evident problems there, here in Shakopee, MN, and all over our nation. Perhaps, in fact, some good may eventually come out of this terrible tragedy of a lost life.

But we must also avoid drawing pat conclusions (again, on either side) where facts are murky.

In their excellent recent book, Think Like a Freak, best-selling “Freakonomics” authors Steven Levitt and Stephen Dubner write of the rising phenomenon of dogmatism — and how it significantly hampers our ability to see solutions to problems very clearly.

Although I may only be a tax professional, in my humble opinion, there are some serious problems in our culture. There really is racism. And there also really is danger for honest policemen and women.

But shouting, lecturing, militarizing and browbeating won’t achieve the healing and improvements for which we all wish. While social media can certainly play an important hand in bringing attention to, and opening dialogue on, some of these situations and issues, let’s be careful to maintain a tone with one another that is respectful and open to the validities in others’ thoughts.

In other words, let’s all pour a small bucket of ice water over our heads, regarding some of our cultural hot topics — and be sure we’re listening first and speaking last, shall we?

Now, speaking of open minds … let’s talk about college education. Specifically, how to pay for it.

Roger Menden’s Big Idea: Pay For College AND Build Wealth?
“He that can have patience can have what he will.” -Benjamin Franklin

The average Shakopee, MN college student graduates with almost $20,000 in student loans. While this is a daunting sum, it is still possible to build wealth even while paying off student debt. But earning the degree and paying for the degree require two different kinds of smarts. In fact, some students may be better off not taking their parents’ advice on how to get out of debt.

Unlike most types of debt, student loans are usually best when paid as slowly as possible.

Almost all debt is bad debt. But, there are two areas in which this general rule is not as hard-and-fast: home mortgages and student loans. Diligent savers can use these types of debt to their advantage.

Students often assume the best thing to do is to pay off student loans as quickly as possible. The sooner you pay off your loans, the sooner you can start building wealth, or so the thinking goes. But, given the opportunity, which answer should you choose: A) Make extra principal payments on your loan each month, or B) Pay the minimum amount due and save and invest the difference?

The real answer is: it depends. However, as a rule of thumb, the lower the interest rate on your loans, the better off you’ll be just paying the minimum monthly payment and nothing more. Take the extra money you were going to pay on your loan and invest it instead.

The lower the rate of interest on your loan and the higher the average market return, the more it makes sense to invest your extra dollars instead of paying down on your loan. The difference between these two rates is known as the “spread.” If market rate of return is 11% and the interest on your student loan is 4%, then, the “spread” is 7% (11% minus 4%).

Let’s look at two examples. Sally and Brian each have $20,000 in student loans which are to be paid over 10 years at 4% interest. Brian pays his monthly payments of $202 plus $100 extra to retire his debt as quickly as possible. By paying making bigger payments, Brian is able to pay off his debt in just over 6 years. Now, with his debt out of the way, Brian invests the full $302 per month that he had been putting towards his debt. Ten years after graduating, Brian has paid off his school debt and his investments have grown to $16,728.

Sally decides to adopt a different loan repayment strategy. Instead of paying extra on her loans, Sally pays only the minimum amount of $202. She takes the extra $100 per month that she could have been paying toward her debt and invests it. She continues this simple plan for the full life of her loan. Because she makes no extra payments on her loan, she takes the full 10 years to pay off her loan. Now, ten years later, Sally’s loan is finally paid. However, her investments have grown to $21,700, beating Brian’s return by $4,972!

Sally has made more than Brian even though she only paid the minimum balance due on her loan. Instead of making extra payments as Brian did, she invested her money for a longer period of time. And even though Brian was able to retire his debt sooner than Sally, his big monthly investments were unable to catch up with Sally’s early saving. Sally was able to boost her savings by starting early and harnessing the power of compounding interest. In the investing world, this principle is called the ‘time-value’ of money.

However, this model is not ideal for everyone facing student loans. The smaller the spread between your loan interest rate and the average market return, the less appealing this strategy becomes.

Plus, there are other important cases to be made, of course, for working to be debt-free as quickly as possible, as I’ve written about before.

Still, there is one additional reason students should consider paying just the minimum monthly payment on student loans. Student loan interest, like home mortgage interest, is tax deductible (which of course, you KNOW I love!). By allowing you a tax deduction of up to $2,500 for student loan interest, Uncle Sam is, in effect, helping to subsidize the cost of your loan. The faster you pay down principle, the faster you lose your tax deduction, which is one more reason that paying just the minimum may be the best option for some. And, with the savings from your tax deduction, you have more money to invest at higher rates of return.

In order to benefit from this loan repayment strategy, you must save and invest your money. If you don’t invest the extra money (and you simply spend it), you would have been better off putting your extra dollars toward the repayment of your loan. But before deciding on a loan repayment strategy that’s right for you, be sure to take care of the following basics first.

Learn about your loans. Many student loans allow for a 6-9 month grace period before loan repayment begins. During this time, your loans may be charged a lower rate of interest. Consider consolidating your loans and locking in your interest rate while your loans are at a lower rate. This may not only help keep the cost of borrowing lower, but it will mean you only have to write one check per month.

Establish an emergency fund. You should have enough money in your emergency fund to cover three months of expenses. This money should be used only in the case of emergencies, and not for those late-night runs to Taco Bell.

Pay off your credit card. It’s estimated that college graduates carry an average of $2,500 in credit card debt. Most credit cards have very high interest costs. Be sure that you are not numbered amongst that statistical class. You cannot build wealth while paying 19% interest on your credit card purchases. Do not begin investing until you have an emergency fund and have eliminated your credit card debt.

Sign up for free money. If you have just started a new job, check to see what type of retirement benefits your company offers. Many companies will match your contributions dollar-for-dollar up to a certain percent of your pay. In other words, you get free money if you invest in the company retirement plan. Make every effort to contribute enough to get the full match. By doing so, you are, in essence, receiving a 100% return on your money. And, don’t assume you are too young to save for retirement. By saving now, and harnessing the power of compounding interest, you’ll have enough to retire long before most of your friends. Remember the time-value of money!

Contribute to a Roth IRA. Once you’ve built up an emergency fund, paid off your credit cards, and taken advantage of any free money available through your employer, make every effort to invest any remaining dollars in a Roth IRA. A Roth IRA is the ideal place to put those extra dollars you were otherwise going to apply to your student loan principle.

Building wealth takes time. But by starting early, you’ll be sure to make the grade.

And, as always, we here at R. Menden Accounting & Tax Service are here to help. Thanks for listening.


Roger Menden

R. Menden Accounting & Tax Service

Re: A salve for all this chaos

08.11.14 PersIf you’ve been paying attention to the news the last few weeks, it seems that we’ve been reeling a bit as a nation, and on the world stage. However, it looks like the Ebola mess may be a little more contained than was initially feared (though still very terrible). The mess in the Middle East is no less hairy, but the Dow is recovering a little from last week’s low.

So, after the cool light of a week’s news has passed, businesses and families seem to be adjusting to a new normal. Consumer confidence still remains tepid and the political future seems murky — will these serious problems be addressed with any kind of certainty?

It remains to be seen.

But, I’ll blush a little to say that this humble tax professional’s advice from last week seems to have proven wise. I’ll rehash my thoughts here with a few expanded comments:

Menden’s Key Reminder #1: What you choose to “ingest” over these next few days will greatly impact your state-of-mind.

If you chose to ignore this advice, it’s likely your blood pressure felt the consequences. Truly — the “mass” media do better (financially) when there is chaos, so there is a very real, monetary at least, incentive for them to highlight turmoil. If you’re wise, you steer clear. I’m not suggesting that you stick your head in the sand, just … use a strong filter.

Menden’s Key Reminder #2: The only thing certain about the stock market is that it’svolatile. I believe you saw the truth in this statement?

As I mentioned previously, the market is rising … but though this is NOT “investment advice”, I will remind you that it’s always a good idea to hold fast – sure, the short-termers may have profited from gyrations, but what’s most important, for your family’s financial future, is that you keep the loooong view.

Which, of course, leads me to my last reminder…

Menden’s Key Reminder #3: The only thing you can truly control is yourself. With every passing week, I see the growing truth of this statement. The economy, your job situation, your retirement — it’s all out of your hands, in a very real sense.

That said, we met with families and clients in the Shakopee, MN area last week who were taking positive action. With our advice, just a few small tweaks can realize six figures of true savings over the course of years.

You CAN control your tax strategy … and we can help.

Until then…

Roger Menden

R. Menden Accounting & Tax Service

A salve for all this chaos

08.04.14 PersIsrael and Palestine.

The Ukraine and Russia.

The mess at the border (and in Congress).


And in the middle of it all, we’re all facing our own private fears, struggles and frustrations.

So … may I remind you of a few things?

Menden’s Key Reminder #1: What you choose to “ingest” over these next few days will greatly impact your state-of-mind. Garbage in, garbage out, as they say. And, of course, the opposite is true — when you surround yourself with excellence and clear-eyed determination, you find that your heart and mind carry much greater strength.

Temper your media intake this week, as most of those outlets are (quite literally) merchants of fear.

Oh, and as I write this, it’s no surprise that the stock market is “reacting” a bit. (The Dow Jones is down about 500 points since Tuesday, 7/29.) So, this leads to my second reminder:

Menden’s Key Reminder #2: The only thing certain about the stock market is that it’s volatileSo those of you with many assets resting there, don’t make moves out of panic. Sit down to discuss atax-advantaged strategy … not a knee-jerk fear response.

Menden’s Key Reminder #3: The only thing you can truly control is yourself. You can’t control the market, you can’t control our foreign affairs (unless, of course, Messrs. Kerry or Hagel are somehow reading this — perhaps you guys can!), and there’s a real sense in which you can’t even, really, control your salary and income.

So, with those key reminders in mind, here’s what I suggest:

You CAN control your tax strategy… and we can help.

Until then…

Roger Menden

R. Menden Accounting & Tax Service


Roger Menden Asks: Your Money or Your Heart?

07.28.14 PersSo the last few weeks, I’ve been offering my help as it concerns setting up family budgets, watching out for those unexpected things that bust ‘em … and, well, ensuring that our independence is never threatened by poor planning.

As usual there’s a bigger picture.

Money has no moral value — it is simply the revealer of what is already true within us.

We see the headlines from over this past weekend that household net worth has dropped by over 30% over the last decade (http://nyti.ms/1nHeXDv), there seems to be major chaos brewing all over the world, in Israel, in Russia/Ukraine, at the US Borders, in Congress (as usual) … but yet, for most of us, what is most pertinent to our daily existence is how we use, handle, and think about … money.

As we look around — using our financial lenses — a common temptation is to judge our well-being not by what *we* have — but by how much we have compared to others. However, many families at today’s poverty level live as well as the upper middle class did a few decades ago. Yet, they still feel deprived.

And for those on the upper end of the spectrum, they often find that even big luxuries ultimately disappoint, as we steadily become accustomed to a higher standard of living. An indulgent purchase loses its luster, and the satisfaction it brings is fleeting.

So how can we fix this? How can we keep our peace as we approach our money?

I believe it starts by re-aligning our hearts a bit. And that’s what I’m writing to you about today.

[By the way, it may seem unusual for a tax professional to write about this sort of thing -- but since money is a great revealer, it often expresses our passions. And, as such, it's worth protecting fiercely. So, let us help you sit down and PLAN for that protection this week. Give us a call to set up one of our Shakopee, MN tax planning sessions: 952-445-8753]

Roger Menden Asks: Your Money or Your Heart?
“We do not need more of the things that are seen. We need more of the things that are unseen.” – Calvin Coolidge

It’s a cliche, but it’s oh-so-true: Money doesn’t buy happiness. Families earning $50,000 a year overspend trying to keep up with those making $100,000 — who, in turn, attempt to live like those making $200,000. For many families, even in the Shakopee, MN area, the lure of consumerism wins out over qualities like foresight and the patience which saving requires.

The Beatles were right too: “Money can’t buy you love.” You can’t pay someone a million dollars to love you more than a million dollars. Money can’t buy integrity or friendship either. You can often purchase a cheap imitation of these values, but not the genuine article.

But money can be used to clarify and encourage the things already most important to you. It can be used to show your love for someone, keep your integrity or help a friend in need.

So, here is a simple exercise which can help you determine what you value most in life. Look at this list of 15 values:

Aesthetics and culture
Financial security
Spiritual growth

Cross off 10, and keep the five most important to you. Then rank those five in order of importance. Look at your list and answer this question: Are you living your life and using your money in sync with your values? If you are married, ask your spouse to do the same exercise independently, and then compare your answers.

Now, take these values and give a hard look at where you are spending your money. Does it fit?

Surveys have found that people regret what they didn’t do more often than what they did. Our lives can change course dramatically (and serendipitously) all because of some small decision on our part. How many times have we heard the story of how a happily married couple met, only to be surprised it almost didn’t happen?

And, often, these decisions are expressed through how we spend our money.

We each long to participate in something significant and realize our greater passions. But that doesn’t just “happen”! It requires foresight, planning and forgoing our momentary desires. The choices we make, every day, determine the ones we will have the opportunity to make in the future. Without those hesitant, often stumbling first steps, we can’t even begin the journey. And, of course, the first step is the hardest.

Voicing what we are passionate about can be scary. Beginning to act on our ideas can feel overwhelming. But courage isn’t a lack of fear; it’s action in spite of fear. And our fear may indicate we are on the quest of our lives.

So again — I refer you to your list of values, held up against how you are currently spending your money: Are there small changes you can make–which would translate into BIG, passionate goals? Going through this exercise may not result in a dramatic career change, but it will help you see ways to align your actions to your goals.

And that, my friend, WILL bring you true happiness.

And, as always, we here at team Roger Menden are here to help! If you need someone, even just to run ideas and budgets by … we’re here for you.


Roger Menden

Roger Menden’s Financial Independence 3: Realistic Numbers

07.21.14 PersThere are too many scolds in this world, in my opinion. (Perhaps that statement even qualifies.)

Turn on the Facebook and there they all are. Eat this, don’t eat that, don’t exercise like this, THIS is killing your children! THIS is destroying your marriage … yada, yada, yada, ad infinitum.

So, as I’ve written the last couple weeks, I’ve sought to be a *resource* — one that you can turn to in the Shakopee, MN area, again and again. We prepare taxes and cut through the financial clutter — and we do it for a living. But that doesn’t mean we can’t speak to the larger issues at play.

Which brings us here, again, to financial independence.

We ALL know that impulse spending and unexpected emergencies can wreak havoc on a budget.

I am NOT here to scold. But sometimes we make the mistake of deliberately budgeting the impossible.

If you purposefully set the required spending in one category too high, you won’t be able to trim other categories to bring your overall spending into harmony — which is where it needs to be.

I want to see all of us make it a point about our money to be thoughtful, industrious, *content* — and thrifty.

So let’s not set ourselves up for failure, right at the jump.

Roger Menden’s Financial Independence 3: Realistic Numbers
“You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett

This is my third, and final, installment in a continuing series on real financial independence. Now is when I help us see when we may be inadvertently planning for failure…

Too much house
You can’t afford more house than your budget will allow. If you spend 50% of your lifestyle expenses on housing, you will not be able to live proportionally on the rest of your budget. Too much house is one of the most common mistakes a young family can make.

Try to keep your rent under 20% of your take-home pay after you graduate from college. Aim for all associated expenses (mortgage, insurance, taxes, etc.) to be less than 30% if you own property and some of the payments go toward the principal. And by no means let your housing costs exceed 38%, or your budget will be doomed before it even begins.

Most of us never saw our parents and grandparents in their younger days when they were struggling financially and lived in tight accommodations. It is as though we can’t feel successful without immediately enjoying the lifestyle of our parents at the height of their careers. To decide how much house is enough, calculate how much house you can buy for 30% of your standard of living.

Transportation costs should be under 15% of your lifestyle spending and include insurance and maintenance as well as saving for your next purchase. If you want to actually be smart, only buy a car you can pay for with cash. 

As a result, your first car may be a clunker! Immediately start saving for your next car and the inevitable costly repairs. This strategy will limit the number and quality of cars you can afford. Remember, there are families earning more than you who take public transportation or share rides to work.

Eating out and prepared foods
Starbucks has become the poster child for budget busters. Buying a $4.50 cappuccino when you are young costs you $450 in your retirement account. And spending $4.50 a day costs you $450,000 in your retirement!

It doesn’t have to be a latte. You can generate amazing savings from any expense. But a pricey latte illustrates the huge markup on a dollar coffee. Aim for food to be under 15% of your lifestyle spending. You would like your food to be inexpensive, healthy and convenient, but it can’t be all three. You can usually only pick two.

Healthy food tends to be more expensive per calorie. So do convenience foods. One person eating out can often fund the entire family eating at home. And even when you purchase food in the grocery store, prepared foods can cost more than twice what you would pay for the individual ingredients.

By learning to cook with common staples such as rice, beans, flour, oats, potatoes, and chicken, you can drastically reduce the percentage of your budget spent on food. Save even more by brewing your own gourmet coffee at home.

Other regular expenses
Review monthly, quarterly or annual recurring charges. Research the cheapest basic service for your phone, cable, Internet, and insurance. Often, these really are “commodities” (i.e. those things which it hardly matters who provides them). Compare that to what you are paying now, and ask yourself if those seductive extra features are really worth the cost.

A gym membership used regularly might be a wise choice, but if you haven’t shown up there for weeks, it isn’t. For each expense ask yourself, “Is this really a necessity?” Any way you can reduce your regular bills saves money every year.

In summary, every category of your total budget must stay within a limited percentage. Careful planning and a courageous look at your lifestyle can help you identify those budget busters. Adjusting a few spending excesses could solve all of your spending problems.

And, as always, we here at team Roger Menden are here to help! If you need someone, even just to run ideas and budgets by … we’re here for you.


Roger Menden

Roger Menden’s Financial Independence 2: No More Surprises

07.14.14 PersLast week, we talked about having a sure hand.

Even if your take-home income is very high — we all need controls on our spending so our spending doesn’t control us.

And I want to be clear: I have NOTHING against becoming very rich, but I am much more interested that all of us (myself very much included) attend to the soul factors connected to money.

Some of us in Shakopee, MN need to break out of a poverty-driven mindset, based on our history (i.e., how money was used and discussed around our original family), and because of our own poor decisions. Too many have grasped after wealth with a hungry eye, and been burned. And then, well, people give up — they imagine themselves to be poor, and seek after the elusive pot at the end of the rainbow to solve all of their problems.

Sometimes I’ve even seen this among those with seven figures on their asset statements.

I’d much rather all of us make it a point about our money to be thoughtful, industrious, *content* — and thrifty.

A big part of the battle is to rein in our grasping impulses. I wrote about this last week. But this is made even easier when we plan for what we spend — including for those things that, well … many people don’t plan for.

This might hurt a little if you don’t already have these things in your budget, but they will hurt much less when they do come up (and they inevitably will), if you’ve accounted for them.

Here we go…

Roger Menden’s Financial Independence 2: No More Surprises
“Wisdom is learning to let go when you want to hang on. Courage is learning to hang on when you want to let go.” – Mark Amend

This is second in a continuing series on real financial independence, and I’m here to alert you to those items in a family’s financial life that can wreck the well-planned budget…

Interest on debt
There’s no excellent reason to buy anything on credit. If you find yourself considering an expensive purchase and then trying to find the payments in your budget, you are planning for failure. The only two loans you should even consider are a home mortgage loan and a student loan for an education or training that increases your earning potential. Money makes money. Credit does the opposite. Debt breeds poverty.

The average American family carries close to $10,000 in commercial credit. At 18% interest, that’s $1,800 a year or an unnecessary $150 every month per household. If you put that payment into the markets every month over your working years, earning an average 10% return (for calculating our example here), you would retire with an additional $1.5 million.

Unknown unknowns
None of us can anticipate all our expenses. Every stage of life brings a whole new set. Perhaps extensive study and research could help you prepare. But it is easier simply to budget 10% for unknown unknowns.

Insurance deductibles
Review the insurance coverage for your car and home (if you own). A deductible and perhaps a 20% copay often apply. Out-of-pocket expenses could run several thousand dollars. It is more important to limit the maximum expense than to make sure the deductible is low. Budget for the deductible and copay expenses.

Medical costs
Medical expenses are rarely planned. To prepare your budget, have some insurance in place that will limit your catastrophic loss. Second, set up an emergency fund that will cover your expenses if they reach that limit.

Car repairs and replacement
Your car won’t last forever. It will need major repair at some point and ultimately replacement. Decide how much you are willing to spend for the lifestyle you want, and then budget for it. Don’t buy a new $30,000 car and think you won’t have any car expenses for the next five years. Even if you plan on driving your new car for the next decade, you have to start budgeting for repairs and your next new car now.

Don’t borrow to buy a car and then start making payments. That’s nearly always a bad idea and simply ensures you won’t save, invest or grow rich. If you can’t afford to save the payments in advance, you are stretching too much. Buy used or wait.

House repairs
Owning a home in Shakopee, MN and surprise expenses are practically synonymous. The roof might leak. The plumbing could need replacing. A tree may need to be taken down before it falls. The heating or cooling system could need repairs. The carpet will need to be replaced.

So I recommend you set aside at least 1% of the value of your house for repairs, not enhancements, each year. If you have an older home, increase the minimum to at least 2% of its value.

Emergency travel
Another unexpected category is emergency travel. Family illnesses, weddings or funerals impose themselves on a family’s budget with some regularity. Sometimes even family vacations, graduations or other gatherings can strain finances. If you are both of humble means and have a large extended family, your budget could break under the strain. These are not easy decisions.

If you really get strained, I suggest you swallow some pride and ask for help with travel or accommodations. I know that family expectations can seem unreasonable, but speaking the truth in love is always a good response.

Here’s my bottom line: No budget can anticipate every major expense. Life serves up surprises with some regularity. So if we can all put some healthy margin in our daily living expenses, it will give us the stored resources to weather these major bills and then better plan for them going forward.

And, as always, the Roger Menden team is here to help! If you need someone, even just to run ideas and budgets by … we’re here for you.


Roger Menden

Roger Menden’s Financial Independence 1: Avoiding Budget Busters

07.07.14 PersonalIf my inbox over the past holiday weekend is any barometer, there is a LOT of talk about independence. And rightly so, of course, given what we celebrated.

But too much of the talk around financial independence surrounds GETTING … when it should be about “keeping”.

You see, in my opinion as a tax professional, frugality is the new status symbol — or at least it ought to be. It is green. It is compassionate. And it brings with it a financial margin for when life colors outside the lines. It helps bring us the priceless gift of serenity and contentment.

I’ve seen Proverbs 10:4 translated as “A poor person is made with a slack palm.” Which means — in order to be wise financially, our hands must remain steady. Extend your hand toward an impulse purchase and with one weak flick of your credit card, all thoughtful budget planning can be hopelessly broken.

And for many Shakopee, MN families, it’s “once on the charge, forever on the card”. Excess spending slows our accumulation of capital to invest. When we are drowning in excess purchases, getting ahead is like trying to sprint through deep water.

Certain purchases that are typically both unnecessary and unplanned are budget busters. Avoiding these financial slips requires hedging some of our worst impulses and constraining our desire for instant gratification. Only by saving enough in discretionary spending can we afford to put 10% of our budget toward those true and unavoidable emergencies.

So, here’s to REAL independence … and how we can all get there.

Roger Menden’s Financial Independence 1: Avoiding Budget Busters
“Tomorrow is often the busiest day of the week.” – Spanish Proverb

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

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

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

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

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

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

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

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

The second rule limits the frequency of mistakes. Practically speaking, you can learn to postpone spending one purchase at a time. This is taken from what many parents do with their children: when they are young, they have to wait a week before spending money on a toy. After the seven days, they often want a different toy instead. Then they have to postpone the purchase again.

In my opinion, children should be required to wait as many days as they are years old before being allowed to make a large purchase (that is, more than a week’s allowance). You can use the same technique to strengthen your own slack palm.

When you’re tempted to buy something, wait a week before acting. If you still aren’t sure, wait another week. There is always tomorrow, and most of the time you won’t remember what attracted you to it in the first place. Simply learning to delay and avoid impulse buying can cut your spending in half.

The goal here isn’t to be rich, per se, but instead to be thoughtful, industrious, content and thrifty. If you struggle with Madison Avenue’s mantra of personal fulfillment through excessive spending, turn the image around. Nearly all of our spending is discretionary, and every spending delay can be a way to bring peace into your life.

The third rule is to recognize the categories where you make mistakes. Dieting works because you are forced to observe what you are eating and learn which foods tempt you to break your calorie budget. Creating a financial diet works similarly. It creates a system that makes spending money more painful. For example, simply keeping track of all your purchases in a small spiral notebook makes you more mindful.

Refrain from discretionary spending in any budget category that is under pressure. It might be eating out. It might be clothes. It might be household items. If you keep your budget in mind, it will help you not to spend more money than you intended.

Whatever your lifestyle, you probably think everything would be just fine if you had $10,000 more a year. That is the deceptive seduction of wealth. We don’t realize there are people living off $10,000 less than we have who are saying the exact same thing.

Ask yourself, “What will I do when I run out of money?” Whatever you would do then, you should do now to keep your spending under control and live within your means. The best way to learn to be content is by taking money out of our spending categories and saving it. The less we spend, the better we will learn to be satisfied. Just as the harder we train, the better our endurance.

If you must satisfy frivolous spending, limit the amount and budget for it. Set aside a half of a percent each for husband and wife. For a family with a budget of $60,000 a year, this would be $25 a month each. If you wanted to buy a $300 item, you might have to save up for it for an entire year. But only put this in the budget if you are saving adequately for all your other big goals.

An even better way is to lovingly meet each other’s desires through the portion of the budget allocated to giving gifts. Too often family members don’t know what to purchase. Consequently, unwanted or inappropriate gifts represent a great deadweight loss of value. But when we leave our desires in the hands of others by offering, say, a gift certificate from the Shakopee, MN area we can afford, we build family bonds rather than resentments.

Summing up this message, to avoid impulse buying: set limits, wait a week, and watch out for those categories that entice you to break your budget. And when you must spend frivolously, limit those purchases to a small fraction of your budget.

And, as always, the Roger Menden team is here to help! If you need someone, even just to run ideas and budgets by … we’re here for you.


Roger Menden

Roger Menden’s 13 Ways To Avoid Capital Gains Tax

06.30.14 PersBecause most savvy Shakopee, MN people (or at least those who have a smart Shakopee, MN area tax pro in their corner ;) ) can decide the timing and amount of capital gains they choose to realize each year, the capital gains tax is considered by many economists to be very “elastic”.

And as such, the amount of capital gains we here at Team Roger Menden choose to realize on your behalf depends heavily on the favorability of the capital gains tax rate.

As a result, over half of capital gains in this country are never taxed. They are avoided completely. But that means the effort of avoiding the tax causes capital to be allocated inefficiently in the meantime.

In my opinion, this particular tax can sometimes punish growth and entrepreneurship. Were the capital gains tax to be abolished entirely, some of the “lost” tax would be regained through economic expansion and more efficient and liquid capital markets.

On the other hand, since capital gains taxes have been raised, the slowing of economic growth *could* be reducing tax revenue by more than the additional tax collected.

But all of this is a question for economists, and smarter ones than myself. For you and me here in Shakopee, MN, it is neither here nor there: OUR business is in helping you structure and position your assets so you can AVOID this tax — and, hopefully, income taxes as well. 

So you agree — we might as well hold on to as much as possible for you, yes?

Roger Menden’s 13 Ways To Avoid Capital Gains Tax
“Having a positive mental attitude is asking how something can be done rather than saying it can’t be done.” – Bo Bennett

There are multiple ways that Shakopee, MN area investors and those with capital gains can avoid being taxed on them. Here are 13 of the loopholes the government’s gain tax unintentionally incentivizes. All of these are things we can help you with at Team Roger Menden 

1. Match losses. Investors can realize losses to offset and cancel their gains for a particular year. Savvy investors harvest capital losses as they occur and then use them on current and future taxes. Up to $3,000 of excess losses not used to cancel gains can offset ordinary income. The remainder of the loss can be stored and carried forward indefinitely.

The amount of capital gains realized depends heavily on the favorability of the capital gains tax rate. This encourages investors to sell great investment vehicles during a temporary dip, only to buy them back again 30 days later for a new cost basis.

2. Primary residence exclusion. Individuals can exclude up to $250,000 of capital gains from the sale of their primary residence (or $500,000 for a married couple). As a result, families who stay in the same home for decades suffer a tax that more mobile families avoid. Smart homeowners who might move (or need the capital) will move more frequently to avoid the tax. Needlessly selling and buying a home is an arduous cost to the economy.

3. Home renovation. Sharp Shakopee, MN area real estate agents and home renovators make their under-market investment purchases their primary residence while they are fixing them up. They then flip the houses, selling for a better sales price but avoiding any tax on their gains via the primary residence exclusion.

This bizarre game of paperwork adds no real value to the economy. However, the flipped houses do add a lot of value to the neighborhood, town and economy. In my opinion, the capital gains tax is wrong to discourage such improvement efforts.

4. 1031 exchange. If you sell rental or investment property, you can avoid capital gains and depreciation recapture taxes by rolling the proceeds of your sale into a similar type of investment within 180 days. This like-kind exchange is called a 1031 exchange in the relevant section of the tax code. Although the rules are so complex that people have jobs that consist of nothing but 1031 exchanges, no one trying to avoid paying this capital gains tax fails. This piece of valueless paperwork does the trick.

5. Stock exchange. Stock investors with highly appreciated securities can also do a like-kind exchange. Certain services offer investors with one highly appreciated security a way to trade it for an equivalently valued but more diversified portfolio. This expensive service can help investors avoid paying even larger capital gains taxes. But it is an entire field invented by government taxation. If the capital gains tax didn’t exist, all of those valuable workers and capital could be allocated to more economically beneficial means.

6. Exchange-traded funds. ETFs use stock exchanges to avoid triggering capital gains when stocks move in or out of the index on which the ETF is based. Stocks moving out of the index are exchanged for stocks moving into the index. Investor cost basis transfers to the new owners of the securities.

7. Traditional IRA and 401k. If you are in the higher tax brackets during your working career, you can benefit from contributing to a traditional IRA or 401k. This both reduces your income while you are in the higher brackets, and eliminates any capital gains as a result of trading in the account. Selling appreciated asset classes in a tax-deferred account avoids the capital gains tax normally associated with such trading. During gap years, between retirement and age 70, withdrawals from these accounts could be made in the lower tax brackets.

8. Roth IRA and 401k. These accounts can postpone taxes to a more favorable year, but Roth accounts can avoid them altogether. Having paid tax on deposits, a Roth account allows tax-free growth for the remainder of not only your life, but also the lifetime of your heirs. Unless you are in the higher tax brackets and approaching the gap years, Roth accounts are usually an excellent tax strategy.

However, all of the tax-advantaged accounts described are further paperwork at the end of the day. No real economic value is gained from this complicated shuffle of assets, even though you clearly benefit by retaining more of your assets.

9. Give stocks to family members. If you are facing a high capital gains rate, you can give your highly appreciated securities to family members who are in lower brackets. Those receiving the gift do assume your cost basis for computing the gain, but use their own tax rate.

10. Move to a lower tax bracket state. State taxes are added on to federal gains tax rates and vary depending on your location. California has the highest U.S. capital gains rate and the second highest internationally, with a top rate of 37.1%. In the United States, nine states add nothing to the federal top rate of 23.8%: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. No national value is added by moving, although individuals can certainly gain from living in a state that taxes their particular assets favorably.

11. Gift to charity. Instead of giving cash to charities you support, you can give appreciated stock. You receive the same tax deduction. When the charity sells the stock, it is not subject to any capital gains tax. The cash you would have given is the same amount you would have had for selling the stock and paying no capital gains yourself.

12. Buy and hold. Many investors buy good index funds that never need to be sold. Even if you re-balance regularly, rebalancing can often be accomplished by using the interest and dividends paid to purchase whichever investments need to be bolstered. The downside is that your capital is locked inside the investment vehicles and not free to be used for greater economic gain.

13. Wait until you die. Most people die holding highly appreciated investments. When you die, your heirs get a step up in cost basis and therefore pay no capital gains tax on a lifetime of growth.

All of the above (and more) are strategies we can look at as we examine your future tax burdens. The last one, however … well, let’s not settle for that one, shall we?


Roger Menden

Roger Menden Wants You To Get a Little Radical: Investing In Gratitude

06.23.14 PersYes, yes — I’m sure we all woke up here in sunny Shakopee, MN this morning wondering how to do exactly that.

Well, I’m going to answer it for you … but because it’s my hope that it will give you vision for beyond just one Peruvian man — and also for the way that doing so might, in fact, unlock something for you.

Handling finances for Shakopee, MN area families and businesses, as we do around here in our tax preparation work at Team Roger Menden, I’ve become fully aware that money is in many ways, an expression of our deepest values and hearts. We put finances towards what we value, plain and simple — that’s its very purpose.

And no matter how you slice it, no matter your net worth … you are VERY well off here in Shakopee, MN. Even Solomon in all of his splendor could not have imagined the wonder of central plumbing, air conditioning, video on-demand and ready access to a smorgasbord of food options — all of which are right at the fingertips of probably over 99% of US citizens.

I do NOT think you should feel at all guilty about your good favor. To the contrary, let’s receive our blessings with gratitude! And concomitant to that gratitude, of course, is finding a simple way to pass that blessing along.

Here’s one idea.

Roger Menden Wants You To Get a Little Radical: Investing In Gratitude
“In the end, it is important to remember that we cannot become what we need to be, by remaining what we are.” – Max DePree

For the world’s poor who survive on less than $2 per day, banking services are unavailable. Without access to a safe place to store savings, the poor cannot get a loan to start a business. And without a job or collateral for a loan, no bank is willing to lend.

In the 1970s, economics professor Muhammad Yunus began visiting the poorest women in Jobra, Bangladesh. He found they could not get loans except from moneylenders at exorbitant interest rates. Without loans, the women could not buy the bamboo they needed to make goods for market. But with the loans, after selling their goods and paying the interest on the loan, almost nothing was left.

This realization led Yunus to a simple truth: A small loan with moderate interest rates to the village women would have a profound and lasting effect on their ability to improve their lives forever.

Yunus created and popularized the modern idea of microfinance. He first began lending to the poor out of his own pocket. Later he founded the Grameen Bank in 1983. In 2006, the Grameen Bank and Yunus won the Nobel Peace Prize for their work in creating the simple yet revolutionary microcredit system.

In 2003, Yunus gave a lecture at Stanford Business School. In the audience were Matt Flanner and Jessica Jackley, who cofounded Kiva, which means “unity” in Swahili, two years later.

Unlike the Grameen Bank, Kiva has carefully selected 246 field partners in 76 countries to manage the loans. Once Kiva has collected enough money for the loan, the funds are sent to the field partner. Over the course of the loan, entrepreneurs gradually repay the loan from their profits. As repayments are made, the money is deposited back into a user’s account. Users can then withdraw the funds or provide the money again to another entrepreneur.

The Kiva website provides the online bridge between the savings of donors in the developed world and the needy entrepreneurs in the developing world. And it also puts checks and balances on the process.

Kiva holds the rates and practices of field partners accountable. If the partner charges too much or complains about their lending practices, Kiva drops them and finds alternative lending partners.

Kiva users hold field partners accountable to make honest loans to worthy borrowers. If users don’t find the project commendable, they won’t donate to them and the field partner must fund the loan by themselves.

Creating an account at Kiva is free. Over 1.1 million users have become Kiva lenders. The average for lenders is less than 20 loans or about $479. But the total value of loans made through Kiva is over $550 million. Small amounts make a significant impact over time.

Microfinance cannot solve every cause of world poverty. A loan to buy a calf, raise it and then sell it makes sense in many parts of the world. But if you live in an area where armed bandits will come and steal your cow, microfinance doesn’t work. It is even worse when those bandits are corrupt government officials.

Microfinance is also not a solution for families on the brink of starvation. Given the choice between feeding the calf and feeding her children, no mother is going to preserve the investment in the calf. Microfinance makes the most sense when it is short-term loans for less than two years.

A sample story is of a loan made to Jehiner, a 26-year-old living with his parents in Chiclayo, Peru. He drove a taxicab but needed $725 (2,000 Peruvian soles) to repair his cab. Edpyme Alternativa, the field partner, loaned him the money. Kiva was asked to backfill the loan so the field partner could make another loan. It took Kiva about 10 days to find 29 users willing to loan $25 each. Jehiner had 14 months to repay the loan. Because of the loan, he could continue to earn a living rather than being unemployed.

The detailed personal stories help the lenders see people who need capital in the developing world as real people with real needs.

Microfinance sometimes does wonders, but it is not the solution to every problem. It only makes sense for those who have some way to repay the loan. But Kiva’s repayment rate is 98.95%.

Processing microfinance is just as expensive as big banking, but the profits are smaller. As a result, fees and interest are higher than traditional loans. Kiva helps keep those costs down somewhat.

Optional fees and donations help support the cost of running Kiva. But nothing is taken directly out of the loans. As a result, only the in-country operational expenses burden the loans.

Microfinance is an interesting field, and you can get involved in several ways. With as little as $25 you can begin loaning money to developing world entrepreneurs. Or you can give a gift certificate to someone you know who might be interested.

You can search by multiple criteria to target a very specific type of loan. You can search by gender, country, industry, popularity or timeliness.

And Kiva is not the only such organization. More organizations like it are sprouting up, but here is a short list of other popular ones:


Kiva and organizations like it help alleviate poverty in developing countries as well as alleviate materialism in developed nations. Seeing stories in the developing countries helps us distinguish between needs and wants.

By living a simple lifestyle here in Shakopee, MN, your savings can enable others around the world to simply live. Microfinance helps foster this generous attitude, and also provides a forum for what to do with the money you are not spending.

So why not do something small for you … but very, very big at the same time?


Roger Menden

Roger Menden, Shakopee, MN Tax Accountant On: When College Has a Negative ROI

06.16.14 PersonalWriting to you from Shakopee, MN tax preparation headquarters, and Team Menden … and with graduation season pretty much behind us, there are a slew of high school graduates who are enjoying their last golden summer, before … well, before that time that many consider to be another golden four years.

[I fondly remember those halcyon days before the real world hits! Even in college while preparing for my glorious career in preparing taxes for our fair Shakopee, MN area, I remember thinking: Wow, am I ever BUSY! All of these social events to juggle!!! But alas, "real life" isn't quite so bubble-wrapped.]

But over the last couple decades, there has been a rising chorus of critics who point to skyrocketing tuitions (about which I have written previously), and the corresponding skyrocketing debt-loads, and are just wondering: is it ACTUALLY worth it?

Well, for some schools, the answer is a resounding: NO.

Roger Menden, Shakopee, MN Tax Accountant On: When College Has a Negative ROI
“What’s right isn’t always popular. What’s popular isn’t always right.” – Howard Cosell

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

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

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

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

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

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

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

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

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

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

I hope I am helping the college choice discussion for you, rather than hindering!


Roger Menden

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