“Real World” Personal Strategy Blog

Let’s all calm down…

He who laughs, lasts.
- Mary Poole

There is a LOT of political clamor these days about health care and government spending, and it’s about time I weighed in as YOUR personal financial guide.

But here’s my main point–we all need to calm down and stop talking (or screaming) past each other.

Advocates of small government are angry. And their anger is creating a new and genuine political activism. These citizens are deeply frustrated, and they don’t know where to channel their dissatisfaction.

Some on the “other” side don’t come across as very understanding or empathetic. They brand all conservatives as mean or stupid. They discount the sincerity. They say conservatives don’t represent the real America.

So our American family is more polarized than ever. But we are still a family. Siblings can drive us crazy. They tap repeatedly on the annoy button. Their rhetoric runs hyperbolic. But for many people, it has gotten to the point that everything is maddening.

Our only civil war was inevitable, as Shelby Foote said in Ken Burns’ classic film, because we failed to do what we Americans do best: compromise. “We like to think of ourselves as uncompromising people,” he said, “but our genius is for compromise, and when that broke down, we started killing each other.”

Let’s be grateful that we are still just yelling at each other. Or perhaps yelling past each other. The two very different views take the opposite sides of nearly everything debatable. If you are quick to assume the other side is ignorant or selfish, you will never understand enough to make peace. You are part of the problem.

Compromise is not capitulation. It need not be more costly than either alternative. Every act of the free market is a compromise. Public policy ought to wait for a consensus. We must understand the two views well enough to safeguard the fundamentals of both.

It may seem counterintuitive, but the government that governs best, governs least. The most fiscally responsible periods in recent history occurred when the two political parties split the executive and legislative branches. Ronald Reagan with a Democratic Congress broke the back of inflation and reduced the top marginal tax rate from 70% to 28% in seven years. This limited government produced the economic boom of the 1980s.

Part of the cost was congressional deficit spending that raised the national debt from $700 billion to $3 trillion.

The second period of fiscal responsibility was Bill Clinton’s presidency with a Republican Congress. This combination held back on spending increases and actually began to run a surplus and pay down the deficit.

Right now, we don’t have the luxury of two sides of the political spectrum with equal and opposite power. Even more reason for us to stop yelling…and work towards a compromise.

Moving on to this week’s Personal Strategy Note, I’ve got some early advice on planning ahead for the holidays. Yes, I’m a planner by nature–so I’m putting my techniques in your hands–even if you are NOT a planner!

(Please do feel free to send comments…I read every post and email that comes my way!)

“Real World” Personal Strategy
Budgeting For The Holidays…It’s Not Too Early

It’s hard to believe, but Thanksgiving is just two months away. And while that may seem like a lot of time, you’ll be diving into that turkey dinner sooner than you think…and right around the corner will come the Christmas holidays. That’s why now is the perfect time to start planning for your holiday budget. By formulating a plan now, you’ll achieve more than just the happiest of holidays. You’ll ensure that the New Year will begin without worries of too little cash flow or too much debt. Here’s how.

Learn from the Past
The best place to begin when it comes to planning for this year’s holiday spending is to examine what you did last year. Dig up the credit card receipts and checkbook registers, and add up how much money you spent. You’ll also want to take notes regarding where you spent it. Don’t forget to include money used to purchase gift wrapping supplies, cards, postage, food while shopping, entertainment costs, and special-occasion clothing.

Now that the numbers are in front of you, it’s time to form an opinion. How do you feel about last year’s spending? Did you spend a realistic and appropriate amount, or did you go overboard? Try to be objective. This analysis will serve as the backbone of your plan.

Look at the Present…Pun Intended
Financially speaking, how have you fared this year compared to last year? Be sure to look at any changes in income as well as expenses. If your finances haven’t changed and you’re happy with last year’s spending, then you’re starting off in very good shape. If your overall financial status has declined, or if you were less-than-pleased with last year’s performance, then you’ve got some work to do.

Begin by looking at the number of purchases you made a year ago. Which ones would you make again and which ones have you scratching your head? It may be time to reduce your gift-buying list or change the amount you spend on each purchase. The obvious way to accomplish this is to be less extravagant with your selections. A less obvious but often effective approach is to research your potential purchases. Sometimes you end up paying extra for the convenience of one-stop shopping, so look through the newspaper to find which stores are offering deals. Then look on the Internet to see if you can beat their prices by purchasing online. This practice will cut down on last-minute shopping which can be an expensive proposition.

Look Toward the Future
So, you’ve figured out how many purchases you need to make as well as which ones need scaling back in terms of price. Now it’s time to create a budget. Once again, there is no magic formula. Creating a budget and sticking to it requires two main things: common sense and commitment. Let’s take a closer look.

A budget should always be based on the money you have, not the money you can borrow. If you are still paying off charges from last year, then you need to avoid using credit cards to make gift purchases this year. The amount of money you decide to allocate toward holiday spending should be based solely on what you’ve saved or what you will save from now until the time you start shopping.

When drafting your budget, start by creating a list of recipients, along with columns for the gifts you intend to buy and the dollar amounts you expect to spend. As you make purchases, keep track of the results. If you overspend on one gift, it is imperative that you make it up somewhere else. Your diligence is one of the keys to staying within your budget.

It’s also important that you watch out for potential pitfalls, including impulse shopping. Getting into the spirit of the holidays is one thing, but spending frivolously based upon a last minute decision is something else. You’ve got a list, and your job is to stick to it!

One final thing that may need an adjustment is your overall philosophy. It’s easy to look at the budget you’ve created as a restriction. After all, it’s nothing more than a set of rules. The flip side is that these rules are there for your protection. Sticking to them will not only help you feel comfortable about your finances before and after the holidays, it will free you from the stress that comes from accumulated debt. When you look at it this way, a budget can be downright liberating. Give yourself the gift of a financially stress-free holiday, by planning in advance.

I hope this helps!

Where to find more sources of income

It’s always too soon to quit.
- Norman Vincent Peale

No, the recession isn’t over. Yes, there is good news out there–and I LOVE sharing good news with my clients and friends, but over the weekend, I was reminded again about how often we can just *grasp* at every item of good news, and not recognize the underlying truth.

Saw this article: http://news.yahoo.com/s/ap/us_economy … and indeed, it’s hopeful.

However, what the AP doesn’t acknowledge, in the writing, is that the good news being referenced is simply that the numbers were slightly better than what the “analysts” were expecting. In short, some (educated) guesses were wrong…the numbers were just “less bad” than they initially thought.

But still…bad. Unemployment is creeping towards 10% nationally, and we’ll have to wait for a few months to see what the third quarter numbers *really* were. Sure, I’ll still point to articles which can give you a shot in the arm of hope–because our mindset about these issues is often just as important as the underlying data.

Yet I refuse to be blind to reality.

Which, of course, is why we spend so much time around here to make sure that YOUR numbers are also rooted in reality–so you can make the best decisions possible for your family or your business.

And the real world for some of my clients, or their friends–times are tough. So, I thought I’d rip off some quick thoughts for you on finding additional sources of income.

It’s the subject of this week’s Personal Strategy Note…feel free to send your thoughts or questions!

“Real World” Personal Strategy
How To Find Additional Income

This economy certainly has a bunch of families looking for ways to “trim the fat”…well, to continue the metaphor, how about *adding* some “lean”?

You see, when trying to save money, eventually you’ll come to a point where you have cut as many expenses as you can and there are no additional steps you can take to free up money from your current income. The next step to saving more could be to look for other sources of income. These are a few common ways to make extra income with which I’ve seen many clients succeed.

* One of the most obvious has to be getting a second job. While this can eat into your free time, it’s an immediate way to bring in a dependable, set amount of income. You could try to make it more enjoyable by choosing something you’re interested in. For example, if you are an avid golfer, then work in a golf store. Not only will you enjoy the job more, you may have a discount that will benefit you as much as the pay check.

* When you invest in dividend paying stocks, you can receive 3-6% annually in dividends from some of the top financial and utility stocks.

* Rental property can be a great form of income, as long as it’s “cash flow positive”, meaning that the rent you bring in more than covers all the expenses. You don’t want your only hope of making money to be on the future value of the property. With the exception of the occasional real estate bubble, the actual appreciation on a house makes a terrible investment, believe it or not.

* Sell things around the house that you don’t use anymore. This could be done with a garage sale or online at www.Ebay.com, www.Kijiji.com or www.Craigslist.org. If you get comfortable with selling on these sites, you could even buy things at other garage sales that are undervalued and sell them online yourself. If you enjoy a certain hobby, like crafts or woodwork, you might be able to make something that you can then sell online.

* There are many opportunities to make money online if you like to write. You can either have your own blog or write on sites like www.HubPages.com or www.Suite101.com. Further, if you have other “freelance” skills, a great site to find work is www.elance.com.

While not all of these ideas will make a lot of money, even bringing in an extra $100 a month to invest and earn 7% will give you extra savings of around $117,000 in 30 years!

I hope this helps!

Don’t miss your chance on these…

Thoughts lead on to purposes; purposes go forth in action; actions form habits; habits decide character; and character fixes our destiny.
- Tyron Edwards

How was your long weekend? Hey–whatever your opinion about labor unions, I think we all appreciate an extra “day off” now and then (though, as with many business owners, my “day off” wasn’t exactly just burgers and the pool…working hard on getting ready for tax season around here)!

Yes, as you may have heard, “Labor Day” originated during the time of 7-day workweeks of 12-hour days, in the late 1800’s, as our country was in the throes of the Industrial Revolution. Times have certainly changed since then–and our economy is no longer driven by the manufacturing jobs of the past.

Now, it’s about *knowledge*…and that’s why I take the time each week to inform YOU about the “real world” steps you should be taking with your family’s finances, and how to be prepared for any circumstance. Including the changing tax law…

In this week’s Personal Strategy Note, I’m running down a list of some upcoming tax breaks which are set to expire THIS year. Some of them may end up getting extended into next year…but if you don’t act on them, then you’ll miss your chance to take advantage THIS year.

And, of course, some of them go away forever on December 31…

“Real World” Personal Strategy
Tax Deductions That Will Expire

As with anything like this, my staff and I are here to assist you in taking advantage of them. Call us if you have any questions.

Individual/Family Deductions Going Away
• The $4,000 deduction for “qualified tuition and related expenses”
• The $100,000 exemption for IRA distributions paid by the trustee directly to a qualified charity
• Increased exemptions for calculating the “alternative minimum tax”-able (AMT) income — this one’s a killer
• The deduction for sales tax you pay to buy a new car or truck
• The “First-time Homebuyer” tax credit (this one actually expires November 30, although it may be extended)
• Deductions for state and local sales taxes (as opposed to income taxes)
• Special deductions for state and local property taxes for clients who don’t otherwise itemize

For Business Owners
• The expanded “first-year expensing” dollar limit of $250,000 (which drops to $125,000 in 2010)
• Expanded first-year depreciation benefits for business vehicles
• The 50% “bonus depreciation” for new business equipment
• Accelerated depreciation benefits for certain tangible assets (including “qualified leasehold property,” restaurant property, retail space improvement property, and “qualified machinery and equipment” used in farming businesses)
• Special credits for “COBRA” continuation subsidies for laid-off employees

I hope this helps!

Some warnings–and hope for the downtrodden…

“Respect your efforts, respect yourself. Self-respect leads to self-discipline. When you have both firmly under your belt, that’s real power.”
- Clint Eastwood

First for the warnings…

Are you a social media butterfly…and hiding from the IRS? (Well, in truth–if you’re one of our clients, that’s HIGHLY unlikely. ) You better watch out–looks like our federal friends are starting to hop onto the popular social sites to find tax evaders.

Article here: http://online.wsj.com/article/SB125132627009861985.html .

Watch out scofflaws! (I know that’s not you…just thought we’d all find this interesting.)

Here’s a juicy one…was in the news in the winter that our Treasury Secretary used the “Turbo Tax defense” to explain how he failed to pay some delinquent taxes. (Goes to show you–don’t trust the “cheap” options!) Well, turns out that defense didn’t *quite* work for some regular folks:
http://taxprof.typepad.com/taxprof_blog/2009/08/tax-court-rejects.html

Key bit: “In the end, reliance on tax return preparation software does not excuse petitioners’ failure to review their 2006 tax return.” Oops!

Now for some good stuff–did you hear about how one lucky lady received a $122,783 refund check from the IRS…by mistake? Fortunately, this woman did the right thing (and didn’t live her life like she was playing Monopoly) and returned the money. Goodness knows she could have used it–she works as a housecleaner. But it also goes to show you that good people still do the right thing!
(story here: http://www.cbsnews.com/stories/2009/08/24/national/main5261997.shtml )

In this week’s Personal Strategy Note, I know that times are still tough for many folks out there. Despite the good economic news that we’ve recently been seeing, the JOBS number is what economists call a “lagging indicator” (i.e.–good news shows up there later than in other places). So, I’ve put together some pertinent items for the unemployed.

“Real World” Personal Strategy
Tax Considerations When You’re Unemployed

The bad news…you don’t have a job, and the job market ain’t exactly bursting with opportunity these days.

The good news…your joblessness translates into tax-savings for you. Turns out the tax code occasionally has a heart!

There are, of course, some caveats for you–and I’m here, as usual, to sort them out for you!

IMPORTANT NOTE: If you’re looking for work in the SAME line of work you previously held–you’re in luck, as many expenses for your job search are deductible. If you’re switching careers, well…you didn’t think Uncle Sam was *that generous* did you? I’m sorry to say that switching careers renders many tax breaks irrelevant.

So…to qualify for a deduction, you must be looking for work in the same trade or business. Whether or not your job search is successful (or whether or not you accept an offered position), these items can be written off. It also doesn’t matter whether or not you are currently employed while searching; in fact, you may even be temporarily employed in some other industry while looking for a permanent job in your field.

The following expenses incurred in a job search in your current field may qualify for a deduction:

* Travel and transportation expenses. This includes meals and lodging while away from home as long as the expenses aren’t considered “lavish.” It includes travel for the purpose of a job interview (to the extent not reimbursed by the prospective employer). Also, the purpose of the trip must primarily be for a job search and any personal activities must be only incidental. Otherwise, the travel expenses are not deductible. However, even if the travel expenses are nondeductible because the primary purpose of the trip is personal, this does not preclude the deduction of any actual costs incurred for the job search. The standard mileage rate may be used to calculate car expenses.
* Administrative fees (Copying fees and postage incurred to send your resume to prospective employers)
* Advertising
* Employment or job placement service fees, including any fees charged for counseling and referral services
* Fees for a resume preparation service
* Professional photographs and demo tapes (for those in the entertainment industry)
* Telephone charges incurred when seeking work

The following are NOT deductible, however…

* When looking for your first job. (If this is you, you can get around this by trying an internship in your chosen field)
* If you are hired on a probationary basis with the understanding that the job could become permanent, none of the expenses incurred (such as travel, meals or lodging) are deductible.
* If, while you are searching for work, you put down a deposit on a residence in the area where you hope to find a job–and then later must forfeit that deposit.
* If you sell stock of your former employer and realize a loss, this is not deductible.
* A real estate agent’s commission on the sale of your house, in connection with a move to a new job location
* If too much time elapses between the end of your last job and the beginning of your job search (generally more than one year), you cannot deduct your job search expenses. For example, taking time off from the job market for several years to raise a family or go back to school will make future job searching expenses nondeductible. However, there are legitimate exceptions to this, such as if the time lapse is due to a disability. (Note that there is no similar restriction on the length of time spent job searching as long as the taxpayer can show a continuing effort.)

The most important things–SAVE YOUR RECEIPTS and see a professional to prepare your return, as the paperwork (and the relevant code here) is often more complicated than most regular families want to take on!

I hope this helps!