February 20, 2012 by Roger Menden, Shakopee Tax Professional
Last week was love week — so how’d it go? Did you come through?
Yes, some say it’s a "Hallmark Holiday", but then some spouses think otherwise, right? Well, if you blew it, I’ve heard that it’s NEVER too late. Make this week count, my friend.
Now last week’s "festivities" aren’t the only experience I have with the language of love. You see, we meet with married couples almost every week in the course of preparing taxes and handling other such matters. It’s part of what we do–and, as we do so, we get sort of a crash course in marital communication.
Before you get worried–know that we don’t pass judgment on anybody’s marriage! Everyone has their own, unique relational dynamic. And every marriage works a little bit differently–it’s part of what makes it a wonderful institution.
All that said, however, I’ve noticed that *finances* can be a major sticking point in a good marriage.
But the great news is that there are simple steps you can take which will ensure that you don’t ever fall into the trap of letting a good marriage be spoiled by money miscommunication.
And, of course, let me know if you have any pressing tax issues or questions! We *love* serving YOU! 952-445-8753 Keeping Money From Ruining a Marriage — A Shakopee, MN Tax Professional’s Take
Far too many marriages fall apart, both here in the Shakopee, MN-area, and around the country. And, sadly, one of the most often-cited reasons for that being the case is financial angst.
We’ve seen enough beautiful marriages around here at Menden Headquarters, that I believe that I can put together a few commonalities of how finances are handled in some of the best of relationships — be they marriage, or otherwise…
Start saving when young. Every seven years you delay starting a savings plan cuts in half your ultimate net worth in retirement. Chances are that you know someone who’s getting married this year so send them a copy of this article. It may be more valuable than any check you write.
Budgeting together. Couples that share church activities or philanthropic causes do better financially because their common vision allows them to work together instead of pulling in different directions. They do well while doing good.
So, the more chances you have to do something which helps you to clarify your shared vision, the better the marriage team. Even the simple process of creating and adjusting a family budget provides a forum for discussion of what is really important to the family.
Realize that a budget brings freedom — not constraint. Couples without a budget can, and often do, fight over every dollar spent. But couples who have worked together on a budget are already in agreement on the big picture. Once the difficult decisions are made, the specific purchases in each category are much less critical.
Here’s one way this works (among many): Having decided how much money the family can afford to spend on clothes for him and for her, it doesn’t matter as much if he prefers lots of inexpensive clothes and she prefers a few nice pieces, or vice versa. A budget allows discretion and freedom to prevail within the context of cooperation and teamwork.
Pay your family first! Even if it hurts, at first, saving equals paying yourself. And don’t worry in the beginning overly much about where you’re placing your savings — only after you’ve saved several times your annual salary does the rate of appreciation become more important than the actual rate of savings. The main thing, early on, is to do it!
Because money makes money. And the money that money makes, makes even more money.
Limit the amount you spend unless you both agree. One big mistake can undo months of frugality and sacrifice. So it’s a good idea, that for big purchases, you require both members of the team to agree. Honoring each other in this way helps avoid resentment and disgust.
Have a small slush fund. Both members of a marriage should have a slice of the budget which is completely at their discretion. So long as their spending stays within this thin slice of the budget pie, they can be completely frivolous. Maybe it’s only 0.5% of your total budget, but it’ll provide a place to put purchases which otherwise might cause marital strife.
If one member collects ceramic pink pigs and the other signed collectible hockey cards they can both enjoy their frivolous expenditures without jeopardizing budget items that are more important to the family.
Couples that learn to live proportionately maintain their balance, whether they are rich or poor. No matter the circumstances, they include some fun, some gifting, and some investing as a reflection of their shared family values.
And it starts with having the conversation. So do it!
And let us help you along the way…
December 5, 2011 by Roger Menden, Shakopee Tax Professional
"The only way to get positive feelings about yourself is to take positive actions. Man does not live as he thinks, he thinks as he lives."
- Vaughan Quinn
The other day, I received probably the 20th "Consider including _____ in your holiday giving plans" request of the season. I’m not tired of it (in fact, I welcome it), but it’s also pretty clear that these 501(c)3 organizations all sort of "get" simple tax planning!
So as a tax professional, it warms my heart to see all of that deductibility flying around through mailboxes and the interwebs, and I’m especially happy when I see clients step to the plate and actually give.
Last week, I wrote about those inevitable "last-minute tax moves" we tax professionals always spout off about around this time of the year, and (surprise, surprise!) one of the options was increasing your donations.
But I wanted to address this a little more specifically — because donating for tax purposes is good (VERY good) … but there are better reasons. In fact, the current White House administration continues to scrutinize reducing the deduction rate for charitable donations, as it seems to do every year around this time.
So we might as well consider what it would look like to give with a smaller tax deduction incentive for doing so (though I should hasten to add that these proposals are not yet set into law).
"Real World" Personal Strategy
3 Reasons To Give Money Away, With or Without a Tax Deduction
There’s something that happens to your soul when you cut a big check to someone in need.
You signal to those very fears and desires which so often control your unconscious thoughts: "Money doesn’t rule me. I have more than enough, so much more than enough that I’m giving it away." Then, of course, something special often happens: more money seems to find itself in your hands.
I’m not advocating a mystical pay-it-forward scheme; I’m simply making the observation over years of being a student of how money "works". And, "coincidentally" it just seems to find itself in the hands of those who give it away.
Why is it that those who are benevolent seem to be well-taken care of, even rich? I know many families of significant means who were NOT wealthy when they started to give in large percentages of their income (15%+). Coincidence?
So I’d say that this first dynamic is one significant reason to give: Your soul is set free from the shackles of fear and greed.
Here are two more big reasons:
2) You build a network of grateful friends and organizations. You’ll never know when someone to whom you’ve donated or given (be it time, money, connections, or other resources) comes back to you with something you need, at just the right time.
Personally, I’ve seen this dynamic in play enough times to not dismiss it. When you act or give generously, it’s the most powerful form of networking on the planet. Obviously, there are better, less self-interested reasons to give … but there sure are worse ones.
3) Your perspective can shift in an instant. When you don’t just give money, but also time and heart, you often learn heretofore unrealized reasons for being grateful about your own present circumstances.
Sometimes giving to institutions that work with the poor can bring home appreciation of your own enormous wealth. And it can also bring home awareness of a poverty which isn’t solved through adding zeroes to a bank balance. But either way, if you do it right, you are changed for the better.
With these reasons, AND the monetary benefits to your tax return, I urge you: stretch yourself this month. Give more than you think you should. See what happens.
I promise it’ll be good.
All this said, above, I firmly advocate for being careful with your planning of said giving. I don’t suggest impulsivity, just some small risk-taking.
But don’t risk losing out on the tax advantages to gifting appreciated stock, or other, less common, forms of gifting. Shoot me an email, or give us a call (952) 445-8753 if you want to discuss the tax implications of your year-end giving. It is, after all, what we do.
October 31, 2011 by Roger Menden, Shakopee Tax Professional
"It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them. They went out and happened to things." – Leonardo da Vinci
Brace yourself, because this blog post could hurt a little.
Let me start here: I’m writing this on Monday morning (Halloween), and the Occupy Wall Street folks are freezing their little tails off. The Northeast just got slammed with a snowstorm, and it’s not quite as fun as it used to be to hang out in Zucotti Park and hold protest signs.
Now, say what you will about these protesters (and there’s plenty to say), but one thing they’re certainly correct about is that higher education costs are a huge problem.
Tuition costs (not to mention living expenses) have been outpacing inflation for a long time (for example, see this chart, from actual data, and from even just two years ago: http://satyagraha.files.wordpress.com/2009/07/inflation-factors-2.jpg ) … so, plainly, something will have to give here.
But here at Team Roger, we have to live in the Real World — which means we approach the world according to how it *is* … not according how we WISH it would be.
And if you have children, that means it’s, um, time to start saving. Here’s what I mean…
"Real World" Personal Strategy
Higher Education Bubble Blooming
According to the most recent College Board Annual Survey of Colleges, the sticker price of a college education keeps rising, faster than the price of groceries, health care and almost everything else in the basket of goods used to determine the Consumer Price Index (CPI). In the last 10 years, in-state tuition and fees at public four-year colleges increased 5.6% annually on top of a CPI growth of 2%. The average estimated total expenses for most public in-state four-year students (depending on the state) vary in the astounding range of $65,000 to $90,000.
S0, that means that if you were blessed with the birth of a child recently, you will need to save $430 monthly to pay for in-state college tuition, fees, room and board. Double this rate to cover the full costs at the average private institution. And this doesn’t even include money for a cell phone, pizza, room decor or other stuff that college students deem "necessities."
Now it’s true: most students don’t pay full price for college. In 2009-10, undergraduate students received an average of $12,894 in financial aid, split almost equally between loans and grants. Grants are the most attractive because students are not saddled with a repayment plan after college. Federal grants make up 26% of total aid. Institutional college grants account for 17%, state grants for 6% and private and employer grants (scholarships) for 4%.
But that hasn’t stopped the fact that students are graduating with larger debt loads than they were 10 years ago. This is one of the driving factors of the recent-graduate-laden Occupy Wall Street movement. Public four-year college borrowers graduate with an average of $19,800 in debt; their nonprofit private college counterparts graduate owing $26,100. This private college debt is 17% more than it was 10 years earlier, even after accounting for inflation. In addition, a growing percentage of all college debt is unsubsidized and begins accruing interest immediately.
Perhaps there are some good things which are shaking out here. That is to say, degrees might have to be evaluated a little more closely — that anthropological art history degree maybe should be scrutinized a little more, yes?
So, students will have to make smarter education choices. Today’s global marketplace places more value on hard skills such as engineering, computer technology, teaching and finance. Technical degrees and certificate programs will become commonplace. A liberal arts education will likely diminish in popularity and become more focused at the elite institutions. More students are likely to begin their education at lower cost community colleges and complete a four-year degree at schools that specialize in their concentration.
Parents may feel overwhelmed about the amount they need to save for college. But college education is one of the two lifetime investments for which we approve borrowing money (the other is a home mortgage). Students should plan to graduate with a debt load no higher than half of what they can reasonably expect from their first year’s salary. For example, those with a starting salary of $40,000 should keep their debt at or below $20,000. Thus graduates can dedicate 10% of their annual salary to school debt and pay it off in five years.
New parents who are able should immediately begin saving $430 a month for college. Alternatively, a onetime $50,000 investment should cover tuition, fees, room and board at an in-state college 18 years from now. Yes, this is pretty scary. But there’s other options…
Giving a child the gift of a college education and a debt-free start to adulthood is one choice. Other parents believe their children should participate in financing their college education and can apply the 50/50 savings approach. Parents commit to saving half of the money needed, and their children commit to the other half. Students participate by working hard in high school, applying for scholarships, taking summer jobs, seeking out work study opportunities and accepting reasonable loan levels.
The support of grandparents can help tremendously. The vast majority of the college accounts that I’ve seen are owned and funded by grandparents. Instead of buying the latest gadgets for their grandchildren, they make annual contributions to a college savings account. If the grandparents own the account, it has the added advantage of not being included as a resource on the student’s financial aid forms — and that is a beautiful advantage, trust me!
One last thing: I’m not a stocks advisor, but–I do NOT recommend prepaid college tuition plans. At best, they tend to match college inflation, and if used at an out-of-state institution, returns are based on money market rates, which are abysmally low right now. Even worse … who knows? This bubble may just burst, and you don’t want to have locked into a tuition which might fall through the floor on its own some years from now.
I do hope this helps, if it didn’t scare you too much! Let me know if there’s anything I or my team can do to help. As you can see, both with taxes and family finances, we make it our mission to think ahead on your behalf!
September 26, 2011 by Roger Menden, Shakopee Tax Professional
"The men who succeed are the efficient few. They are the few who have the ambition and will power to develop themselves." – Robert Burton
In the course of our daily work around here, we not only work with numbers a LOT … but we also get a regular course on how people (our clients, mostly) *think* about those numbers.
Maybe it’s funny to you, but I not only make it my business to pay close attention to the tax code, and all of the political maneuverings around it — but I also like to think long and hard about personal finance issues.
After all, so much of what we do comes down to the consequences of daily decisions. So, when clients give us the permission to advise them on more than just which tax credits to take, I want to have myself (and my staff) prepared to give them more than just the normal pabulum you find on Suze Orman.
In that spirit, I’ve decided to channel MY inner Suze Orman and deliver some advice which isn’t the "same old, same old" — and can help you think about how you’re handling your finances a little differently.
And, by the way, one of the BEST ways we can do this is to sit down with you to do some real tax planning. Taxes make up a serious chunk of every families’ expenditures — but too often families REACT, instead of pro-actively ACTING. Let us help you fix that…
"Real World" Personal Strategy
Hidden Financial Mistakes … And How To Fix Them
You pay your bills on time. You try to save as much as you can. You even follow the advice which you read in books and hear on the radio about how to keep your finances in check.
But you’re still not getting ahead.
Well, sometimes, it’s the unchallenged assumptions about how we’re handling our money which rise up and bite us in the keister.
So, in the course of working with clients, I’ve identified some mistakes I see (as well as ones I’ve made myself!), which can be fixed. All it takes is thinking a little differently…
Hidden Mistake #1: Inappropriate Mental Accounting
Definition: Tendency for families to divide money into separate accounts based on subjective criteria.
Typical Example: Treating $100 you received as a gift from Grandma, differently than a $100 bill earned.
Typical Example #2: Having money languishing in a savings account earning 0.25%, while carrying high-interest debt to pay off at 12%.
Cure: Funnel income, no matter the source, into one savings account.
Any "found money", such as a tax refund or gift from Grandma, quickly decide where that money is best utilized.
As for expenses, occasionally change how you pay. If you always pay with a credit card, try cash. This will get you remembering that all of it, for the purposes of your mental "books", should be lumped into one, monthly bucket.
Hidden Mistake #2: Manipulative Price Anchoring
Definition: Our tendency to relate the value of a purchase to a price point which, rationally, should have no bearing on the amount spent.
Typical Example: The "rule of thumb" to spend two months’ salary on an engagement ring.
Typical Example #2: A realtor will tell you that "in 2007 this house was going for $500,000 and is now listed at only $350,000!" … causing you to think this house is undervalued.
Cure: For big ticket purchases like a house, car, or engagement ring, ask a friend whose financial values you respect for their input.
For everyday purchases, avoid looking at the MSRP or sticker price.
Can I afford this today?
What do I really want to spend?
What is this really worth to me?
Marketers are experts at this sort of price-anchoring, and we really should know better … but yet we still fall prey to it. Try not to let outside sources set up the comparison by which you should be considering such large purchases.
I think I have a couple more up my sleeve, but I’ll save those for next week. But let me know: is this helpful to you? And what more could we do for you to help?
To You and Your Family’s Peace of Mind!
August 29, 2011 by Roger Menden, Shakopee Tax Professional
“There is no medicine like hope, no incentive so great and no tonic so powerful as expectation of something tomorrow.” – O.S. Marden
Earthquakes, hurricanes, and … homeownership?
Well, the first two have left us in a mixture of annoyance, grief (there has been real tragedy in the wake of Irene, I must say), and a growing cynicism over crisis alarms.
And well, the last issue — perhaps I threw it in so I could segue into what I want to write about this morning:). Though, in fact, it’s a topic which has continued to be thrown into real debate. The mortgage deduction is under fire from politicians and the housing market still looks shaky.
However, I’m really not interested in getting into debates with clients or friends over this issue. Because despite what I will write here, every situation is different. There are real tax implications for whatever you decide — and which might call for an expert opinion (ahem).
But it’s en vogue now to be “anti-homeownership” given the recent crash in home prices and all the shenanigans the mortgage companies, banks and Wall Street firms pulled over the past several years. People tend to use the “recency effect” (considering the most recent dynamics over any others, simply because they’re closest to mind) and confirmation bias (whereby we naturally gravitate to arguments which confirm our own) to formulate their opinions.
I’d like to enter the fray for you.
Because these arguments dictate important lifestyle and financial decisions for you and your family. So, before I receive any quick-tempered emails for this thesis;), let me clarify a few things:
* Many people CAN’T own — that’s a fact of life. If owning a home isn’t an option for you, for numerous reasons ranging from finances to career, then making a choice between renting and owning isn’t something that mandates weighing the options.
* Many people SHOULDN’T own — perhaps during the days of easy credit or even today, you have the funds to buy a home, but there might be some factors that would make this a poor choice. Perhaps you need to relocate every couple years due to your line of work, perhaps you’re in the middle of a divorce or child custody battle, or perhaps your income is quite variable. It might make sense for you to rent until there’s more stability in your financial situation.
* Many people COULD own, but don’t. That’s my target audience here.
Read on … and remember that we are here for YOU. I mostly want to stir up your thinking, and show you how the planning decisions we help our clients make require multi-variable thinking.
“Real World” Personal Strategy
The Rental Decision
Long-time renters often cite all the negatives of home ownership, and there are some to be sure. But many of these oft-cited reasons have a valid counterargument OR these old paradigms are no longer accurate:
Current Conception #1: It’s More Expensive to Own Than to Rent — This is probably the biggest myth out there that many proponents of renting continue to propagate. Primarily, at this point in time, with home prices having crashed and interest rates at record lows, the rent-to-buy ratio is favoring “buy” in many parts of the country, more so than at any point in recent history.
Now this isn’t just a rah-rah “buy a home” Note, and I would concede that it is entirely plausible that home prices continue to decline for several more years. But if you’re not buying to sell, but rather buying to live, it can be MUCH more economically efficient to own over rent, especially at this time.
Here is the data (rent vs buy favors buy in 75% of US cities), aside from the other intangibles listed below: http://money.cnn.com/2011/08/16/real_estate/buy_rent/index.htm
Let me repeat: It is becoming cheaper to own and it is becoming more expensive to rent.
In my analysis, this trend will continue for years.
Why? First off, the Fed’s policy has been to reward debt holders and punish savers with the unprecedented a) zero interest rate policy and b) projecting out through 2013 that rates will stay low. This in turn, is pushing up gold prices and equities prices, and investors are pricing in future inflation. This bodes well for landlords, and poorly for renters. See, this interest rate/inflation phenomena mixed with the new ratio of renters over owners is flooding the market with renters and starving the market for buyers. This makes homes more affordable, while landlords are embarking on higher annual rent increases.
Current Conception #2: Homeowners Have to Pay to Maintain a Home Instead of the Landlord. Put aside the premium you might pay if you got in a bidding war over a home or made some upgrades to your home that weren’t necessary. Simply baseline the same property and look at renting versus owning it. Everything you pay for as a homeowner, the landlord has to pay for as well. Who do you think pays for that? Do you think the landlord pays for snow removal, replacing carpets, fixing leaks and a new roof every 15 years out of the goodness of their heart? No — you pay for it! It’s all priced in over long-term rent trends. Landlords are in this business to make money and if they weren’t making money they wouldn’t be landlords. You are paying to put their kids through college and for their Caribbean vacations.
Basic economics dictate that over a long period of time, you are losing money by renting, not just because you’re not building any equity, getting a mortgage tax deduction, etc., but because you are paying for the upkeep, depreciation expense and maintenance of the home in your rent — PLUS a tidy profit to the landlord.
Many renters are convinced they’re “beating the system” because they don’t have to pay for these things, but they are — it’s just not itemized out in tidy fashion for them. It’s all in the rent. This is logic — and reality.
Current Conception #3: Renting Provides for Much More Flexibility to Move. This is a major (and legitimate) reason NOT to own. After all, closing costs, transfer taxes, realtor fees and such are nothing to sneeze at. However, what a lot of renters end up doing is deciding to rent instead of own, but then they never move! They end up renting for years on end when they could have owned.
And that flexibility? Well, the landlord also has the flexibility to keep increasing prices year over year at whatever rate they so choose — which then requires a calculus on your end as to how much of an increase makes it worth moving out, in order to just rent somewhere else. Additionally, you’re often locked into an annual lease (which isn’t very flexible), they can sell the home or put new tenants in each lease cycle (which isn’t very flexible), and you can’t do many things to the place you live in without their permission, or perhaps not at all (not very flexible). So, you’re trading the slight mobility flexibility for a lack of flexibility in virtually everything else that the landlord controls.
To reiterate, if you’re a current renter, you may feel this Note is critical of your situation. It’s not. It’s an economic reality that many Americans never have had, or never will have the economic means to be a homeowner. This is a mathematical certainty. The point here is to get my clients and friends thinking who DO have the means to save for a down payment, and who may be better off financially as owners than renters… but who continue to muddle along in complacency because they’ve convinced themselves that homeowners get hosed and renters have all the perks.
If you’re especially interested in math, here’s a helpful exercise for you to consider.
Lastly, I’m here to HELP you, only and always. Let us help you through the important financial decisions in your life, while taking a holistic view of ALL of the costs.
To You and Your Family’s Peace of Mind!
August 22, 2011 by Roger Menden, Shakopee Tax Professional
"The game of life is not so much in holding a good hand as playing a poor hand well." – H. T. Leslie
Meeting with clients this past week (and the week before) has been a blast.
No — really! And yes, I know, I should get out more.
The reason we enjoy doing this (especially this time of year), is that seeing the look on clients’ faces when we identify tweaks and quick moves which carry a significant ROI on their tax dollars … well, it’s worth all of the time we’ve put in to learning this craft.
Sometimes during these meetings, I’m duped into sharing some of the ‘private’ details on how I think about taxes, finances and investing for my OWN family. Yes, I do try to practice what I preach in these Notes to my clients and friends! (And yes, I do have a private life outside of tax forms.)
Enough people have told me that these back-of-the-napkin principles which I share have been helpful, that this morning I’ve been motivated to put some of them down for you in easy-to-digest form!
So, without further ado, Roger Menden’s Napkin Financial Strategies…
"Real World" Personal Strategy
Economic Principles in Action for Your Family
Whether you’re running a Fortune 50 corporation, or just trying to keep your household expenses from exceeding your salary, the same basic financial concepts which I use in my personal life can apply for you. These are fundamental building blocks for wise financial decisions.
Quick Interest Calculations: The Rule of 72
Want to double your money? The Rule of 72 can tell you how long it will take, based on the specific interest rate you’re looking at. Just divide 72 by the interest rate. For example, if you’re looking at an investment with an interest rate of 6 percent, then 72 divided by 6 gets you an answer of 12 years.
This is a rough estimate, of course, but it’s pretty effective.
In fact, you can also turn the equation around to determine the interest rate you’re looking at if someone promises to double your money in a set amount of time. Twice as much money in 12 years? Divide 72 by 12 and you get an interest rate of 6 percent. This rule lets you evaluate investment opportunities quickly and decide where to put your money.
What do you need to give up in order to get something you want? It’s a question of money, but also time and value: Pursuing an advanced degree may take years–are you willing to put in that amount of time? Will a sports car give you enough enjoyment to offset going into debt for it?
This is money you can’t get back–a non-refundable airline ticket, for example. Keep sunken costs in perspective. It’s easy to start thinking "Well, I’ve already spent $100, what’s another $25?" You’ve got to be willing to walk away sometimes.
Time value of money.
According to this principle, a dollar you receive today is worth more than a dollar you’ll get tomorrow. You’ll have opportunity to invest that dollar immediately and begin earning more revenue from it (and also avoid losing value because of inflation).
Again, this helps you make calls about your purchases — and your income. It’s the old "a bird in the hand" theory in action for your wallet.
I hope these help!
August 1, 2011 by Roger Menden, Shakopee Tax Professional
"If it’s not something you can decide about, if it’s not something you can avoid, then all you can do is worry. And what’s the point of that?" -Seth Godin
There are just some stories where nobody comes out looking good — and this "debt ceiling" debacle is one of them, in my humble opinion.
Yes, a deal was struck. Congressional Republicans and President Obama both get to claim some credit for getting it all done … but let’s step back from it all and realize that this entire debate has revolved around an issue which has been almost custom-designed to accentuate that the way Washington DC "works" is different from how our families and businesses have to work.
When the conversation is mostly about "winners and losers" (e.g. see: http://www.washingtonpost.com/politics/the-debt-ceiling-deal-winners-and-losers/2011/07/31/gIQAHl7FmI_story.html ) — instead of "is this a sustainable fiscal model?", then Washington is really leaving us all behind, it seems.
Which is why so many of my clients tell me it’s nice to have a mediator, so to speak. A bit like being the real world’s ambassadors to IRS-land, we tame that tax code, with all of its committee-written language, and we’ve also found that these dog days of August are the PERFECT time to be reviewing our client information, and planning out adjustments to ensure that we’re pursuing the most advantageous tax strategies.
If you’d like to sit down, call us: 952-445-8753
I’ve also noticed that this debt ceiling debate has ramped up the worry level for some of my clients. So let’s talk about that today…
"Real World" Personal Strategy
With all of the news about spiraling federal debt, it’s natural that Americans are taking a hard look at their own situation, and it sometimes leads to worry–even for those who are relatively secure.
Interestingly, my clients who have MORE cash in the bank often worry more! Funny, right? But it’s normal human nature….
You see, under all guidelines and measures, my finances are very solid. I’ve got a thriving business which is more secure than most people’s jobs. I work with numbers and am very good at taming balance sheets.
Yet, I still sometimes worry about money.
After a lengthy time of thinking, discussion and some more thoughts into the matter, below are a few techniques I’ve settled on which can help us ALL reduce our worries over money.
1. Realize that It’s Exaggerated – Worry is a funny feeling – it seems to exaggerate any problem. While there are certainly many people who actually run out of money, those are usually not the people that tend to worry.
2. Spend the Same Time Making Money Instead – If you are going to spend time worrying about money, why not use that time and get a side job instead? Maybe start a website (or two, or three). I know it’s easier said than done, but the more you work at it, the easier it gets.
3. Confidence – Part of the reason why we worry about money is because of the lack of confidence in our own abilities to earn an income. How can we boost our confidence you ask? Confidence comes from success, and success starts from taking action. So try a few low-risk entrepreneurial ventures. If they bomb, see it as a laboratory: learn from it and try again.
But never (never) allow it to touch your identity as a person.
4. The workplace plays a big role in worry. Are your colleagues encouraging? Is your boss supportive? If not, then do something about it. Don’t get into the thinking of "I can’t find another job". Yes you can — especially if you HAVE a job right now. If you got this job, you can get another one!
5. Worrying is Actually Good – A little, measured worrying is actually healthy for us. It’s what drives us to be better. It’s what turns our energy switch to the "On" position. The right way to deal with it is to channel it into your work ethic, and your desire to be better.
How Do You Deal with It?
Of course, what I listed above is just the tip of the iceberg. How do you deal with worrying about the lack of money? Or do you? What has worked for you? I’d be interested to hear.
To You and Your Family’s Peace of Mind!
June 20, 2011 by Roger Menden, Shakopee Tax Professional
Always do your best. What you plant now, you will harvest later.
- Og Mandino
These last couple weeks, I’ve been ruminating on how the rich can "act" poor. And there have been a variety of responses — and the questions: "Roger, fine — but how about what it takes to teach wealthy thinking?"
A great question — and the internet abounds with answers, of course. "Abundance thinking", investment schemes, business ideas and many other such mechanisms clamor for our attention. But I like to think that the real answers are found in the wisdom of the ages — and the aged.
You see, our grandparents’ generation saw wealth-building as a more fundamental battle against our own worst impulses. And, could it be that the recent decade has proven their model to be more correct than we would like to think?
Now, I’m not taking a pessimistic view here … but I’m simply wanting us to "return to the ancient paths", so to speak, when it comes to how we pass along wealth-creating wisdom to our children.
So, at the risk of seeming old-fashioned, I’ve put together a tried-and-true method for teaching your children to grow their wealth, even now, but especially, as they move into adulthood…
"Real World" Personal Strategy
How To Raise Wealthy Children
Sadly, too many families neglect a critical aspect of raising children: teaching them to be financially savvy. That said, many clients have written to say that they read and discuss my financial emails at the dinner table with their children. That’s a nice start.
But if you want to raise kids who can create and manage wealth, there are a handful of critical rules that are foundational.
Here’s the main one: Postpone spending.
In economics, "deferred consumption" is the very definition of wealth and capital. So … defer your consumption, kids! Everything you don’t spend today is wealth. Only what you don’t spend today is available for investing. And since money makes money, what you don’t spend today can provide a lifetime of income to spend in the coming days.
Teach them this: Wealth is what you save, not what you spend.
Most of the younger generation is under the false impression that wealth is based on the luck of a big salary. Nothing could be further from the truth. According to the book The Millionaire Next Door by Thomas J. Stanley, the affluent tend to answer ‘yes’ to these three questions:
1.) Were your parents very frugal?
2.) Are you frugal?
3.) Is your spouse more frugal than you are?
So how did they build their wealth? According to Stanley’s research they did it slowly, living well below their means and investing about 20% of their household income each year. And because money makes money, over time, they grew gradually richer and richer.
Imagine you purchase a pair of shoes for $50 every year. The person that makes do with the old ones and only buys shoes every other year will be able to save and invest the difference. After seven years, their savings will be earning enough interest to pay for a new pair of shoes every other year. After eleven years, the interest from the investment will pay for the cost of buying new shoes every year, forever.
Because being frugal early in life produces great wealth later in life.
Due to the affluence of American culture, it is difficult to learn to distinguish between needs and wants. Very few purchases are needs. Other than food, shelter and clothing, everything else is optional. In the United States, we show our extravagance even in these three essentials.
Practically speaking, you can learn to postpone spending one purchase at a time. When our children were very young, we required them to wait one week before spending money on a toy. Often, after waiting a week, they wanted a different toy instead. Then, they had to wait another week for that purchase.
Simply learning to delay and avoid impulse buying can cut your children’s spending in half.
So teach your children: Wait now … profit greatly later.
To You and Your Family’s Peace of Mind!
June 6, 2011 by Roger Menden, Shakopee Tax Professional
"Obstacles are things a person sees when he takes his eyes off his goal."
- E. Joseph Cossman
We’re all facing turmoil in this country, I think. And it’s not restricted to those who live month to month.
You see, I sit down every week with families across a wide spectrum of financial means, and sometimes I notice something interesting, even in the families of those with great resources.
In days like we’re facing, it might be a common temptation for my wealthy clients and friends to succumb to wrong thinking — the kind of thinking which they successfully avoided in order to attain the wealth they’ve achieved.
I thought it appropriate to put together a small series on "right thinking", when it comes to your resources. It may be a bit controversial, but I do hope you receive it in the spirit with which I write… (and, as usual, I’d love your thoughts!)
"Real World" Personal Strategy
When The Rich Act Like They’re Poor (Part 1)
In my line of work, I often get to have deep and meaningful conversations with families about the things which they most care about. I LOVE those conversations, and I believe that understanding these deeper passions is "the only way to fly", when it comes to tax planning , and money management.
Now, as I do so, I also run into people’s attitudes about their wealth.
I’ve made a close study, over the years, of how money "works", and just what it is that propels certain individuals and families into great quantities of resources … and what also brings them down.
You see, sometimes the very wealthy begin to act like they’re poor.
It’s the beginning of a bad problem. And, it’s also something to watch out for in your children — because it will give you a clear picture about what might happen should you bequest your resources to them without a clear estate plan, for example. I’ve compiled a group of behaviors characterizing the financially-strapped.
You may have resources NOW… but are you:
* Spending money on things you really don’t need: I’m sure we’ve all got one of those friends who just loves to spend money, and buy things just to say they have them. The newest iPhone just came out? They buy it even though they already have an older version. A new TV came out with a higher refresh rate than their current one? They buy one so they can say they have the newest and latest technology.
That may be fine for a certain amount of time, but there is something deeper happening in the heart, there, which if left unchecked, can signal a decline in wealth. Because it starts with the iPhones … but where does it end?
* Ignorant about where your money is going: Far too often people who are broke find themselves short because they’ve never tracked their monthly cash flow and their small expenses are adding up to consume everything they bring in. They really need to track their expenses for a month or two so that they can set up a plan.
But the wealthy sometimes begin to believe that they’re immune to such proletarian concerns, and allow the same bad habit to encroach into their portfolio. Don’t let up — but, of course, don’t fall into obsession (e.g., are you checking your accounts every day? That’s also a problem!).
* Blaming your problems on outside forces: People don’t like to see themselves as the source of their problems. While people certainly have problems that aren’t caused by something they’ve done, far too often they will also try to shift blame when they should be looking at themselves. They blame their friends, family and the government. They believe that "the little guy just can’t get ahead".
Are you doing the same thing? "It’s the market’s fault!", "My investments advisor screwed me!", etc., etc. … again, signals of a deeper problem.
* More interested in having others think you are wealthy, than actually being wealthy: People who are always broke like to be seen as wealthy and successful, even if looking that way to others means that they’re actually forfeiting the possibility of being wealthy in reality.
Are you pumping your resources into an image? Are you "investing" in items which, really, are more about how people will see you than how they will help your net worth?
* Not planning ahead: For the poor, money is short because they haven’t set up a family budget, and a saving and spending plan. When they set up a monthly cash flow forecast, and know exactly what they’re going to spend in what categories–they’ll do much better. If you fail to plan, you can plan to fail, right?
Again, many resources can lead to laziness in this area. Don’t let up with it.
I will have more to say on this topic next week.
Until then, I do hope you receive this in the affection with which I wrote it.
To You and Your Family’s Peace of Mind!
May 30, 2011 by Roger Menden, Shakopee Tax Professional
You have to see opportunity before you can seize it.
- Greg Hickman
Through the burger-soaked haze of my morning, I’m sitting down to write to you about something important.
But before I get there and speaking of burgers, how WAS your weekend? I sure hope it was restful. We business owners don’t enjoy the government-mandated holidays, but at the same time, sometimes the best policy really is: "If you can’t beat ‘em, join ‘em"! [So, we took Monday off too:)]
There’s a couple beautiful things about Memorial Day, in my humble opinion:
1) Summer is here.
The pools open, the shorts become a permanent staple and even the flip flops begin to make an appearance. For us, around here, we spend a lot of time in our summers sitting down with families to conduct careful analyses of their tax situation — BEFORE the winter strikes, and our moves become much more limited. This is called "tax planning", and it’s an essential move, if you want to get the maximum tax savings possible.
2) Memorial Day reminds us that our current struggles have been overcome.
With all of the chaos in our current events (tornadoes, Mideast turmoil, government debt, etc.), it’s important to remember that even just one or two generations ago, our nation faced much worse–and prevailed. The "sacrifices" we may be forced to make in the midst of a bad economy are nothing compared to the rationing and privation of the WWII generation. And the young men and women who have served overseas in the past decade or so could also give us a good lesson in what REAL need looks like.
It’s right that we honor their triumph, and for many thousands of families — their deep sacrifice.
As I’ve already written a long-ish note today, I want to honor your inbox time — and make my Weekly Note short and sweet, as we start our summer together…
"Real World" Personal Strategy
How Planning Can Save You $1000+
Too many clients (almost all of them) wait until the winter before they look at their tax obligations. Even worse, they wait until that season before they speak with their professional in any kind of proactive way.
That’s a problem, and it could be costing you some serious savings.
Here’s an example:
Let’s say that you were considering taking money out of a pension (401k) to finance the down payment on a house. It’s quite a common maneuver. But let’s say next that you do this withOUT discussing it ahead of time with a professional. That could be a four (or five) figure mistake.
If you were to come into our offices before such a move, I would ask you a few easy, but very important questions, and then (depending on the answer) likely advise you to first roll the money ($10,000) into a Traditional IRA. You could then withdraw the money at a savings of $1,000.00. This is because money used for a first home, up to $10,000, is penalty-free when taken from an IRA, but NOT a 401K.
Would you be pleased by that move? I’d guess "yes", especially if you knew about other clients I know of who failed to plan. This couple just learned of the $41,000.00 penalty they had to pay for doing the same thing, but from their 401k.
There is no guarantee that you will save by speaking to us in advance. But this I CAN guarantee: If you don’t speak with us, we won’t be able to save you a dime.
We’re a phone call away: 952-445-8753
To You and Your Family’s Peace of Mind!