With YNAB, we don’t get into the nitty-gritty of actually handling the paperwork associated with bills (one way to minimize it is to minimize your bills…like cancel things and stuff like that) — NCN has with his tutorial: Bills-in-a-Box. Check it out. He promises that it’s stress free. I like the sound of that!
Lydia, our four-month old little girl, can’t quite roll over yet. She’s getting close. She’ll rock quite a bit. I wonder what would happen to her learning to roll over if Julie or I held her all the time.
I’m sure several months from now she’ll have seen enough walking to also want to try it. She’ll need to learn to balance on those two (wobbly) legs. I wonder how long it would take her to learn that necessary balance if Julie or I constantly held her hand.
If we’ve done some things right, several years from now, Lydia’s going to head off to college. She’ll need to learn to manage her money with a whole new set of obligations. I wonder what would happen to her learning about managing money if Julie or I were to simply give her money to live on, no strings attached.
I’m sure it’s partly my own biases, seeing things through my own lens, but it seems society is bent on making our kids the softest, weakest, most selfish, spoiled brats the world has ever known. Are we raising a Generation Y-ME?
Now in little league, everyone gets a trophy. In spelling competitions, nobody has to go sit down at their desk if they misspell a werd. The Wii is replacing the We in “We’re going outside to play hard, for hours, because we’re kids and wii we have boundless energy.” The word allowance is fundamentally flawed. Is the rising generation going to be a bunch of spineless pushovers? Let me rephrase: are we raising the rising generation to be a bunch of spineless pushovers?
Hold that thought, because we’ll get back to it in just a second.
The crowning achievement in personal finance for my grandfather and his generation was to “own your home” (and it was likely 1,000 square feet — not 2,000+). It seems the Baby Boomer changed that clarion call to something along the lines of, “leverage what equity you do have in your home to fit a lifestyle you can’t afford.”
(Now generations don’t live in bubbles, and we’re seeing plenty of the grandfathers out there adopting the “enlightened” way of thinking. It’s sad and extremely frustrating. Don’t touch that reverse mortgage!)
This trend is dangerous. Treacherous.
I want things now. Now. NOW. NOW!
And there’s no sacrifice to get it. If we screw up, we look for a bailout. If we’re duped, we look for a regulator to prevent us from being duped again. (Failing to mention the fact that we had huge dollar signs in our eyes and the LARGEST of fine print wouldn’t have deterred us from signing on the dotted line.) If we want it, we swipe for it. We have no patience.
We are acting like a bunch of spineless pushovers and our kids are following suit, becoming a bunch of selfish, spoiled, now-oriented, spineless pushovers.
Just like my four-month-old baby Lydia. If she wants to eat, she cries. If she gets too tired, she cries. If she is sick of lying on her back while Julie desperately tries to get things done around the house, she’ll cry (the Baby Einstein Musical Octopus toy distracts her for about 9 seconds).
But if we always carry her, she’ll never roll over.
If we always hold her hand, she’ll never learn to walk.
If we give her handouts, she’ll never learn to work. Sacrifice. And win.
Take offense, or take action — it’s a choice. I vote to raise a strong, independent, take-no-prisoners generation that thrives on difficulty, loves a good fight, and has instilled in them down to their very core the knowledge that school is tough, kids are mean, work is brutal, money is tight, life isn’t fair — and they’ll be just fine.
If you have read my bio you know that I do several things for my clients. I help them with financial planning, investing, insurance and taxes. All of these things can have a lasting effect on their future as well as on the things and the people that they will eventually leave behind. So, when I have a couple come into my office, what single item holds the greatest importance in my eyes? If the couple is married, and especially if there are minor children in the family, nothing is more important to me than if they have a last will and testament – a will.
Last year I learned of a tragic scenario playing out in the family of a client. A married couple died in a car accident, without a will in place. The respective families then went to court to battle over who would care for the children. The battle became fairly bitter. In the end the judge over the case determined that the feelings and actions of the two families were so negative that it wasn’t a good situation for the children to be in – so he made them wards of the state and put them in foster care! The thought of that happening to children crushes me. There were two families who loved these children and would have cared for them and instead these children will grow up in multiple foster homes, separated from each other and subjected to who knows what. All of this happened because their parents didn’t take the time (an hour or two) to create a will.
Now, I know that this may seem to be an extreme example. However, it is extremely common for families to have bitter disputes over children, personal possessions and money. In this business I have the opportunity to witness first hand what happens to families when even a little money comes in to play. Based on my experience and the experience of others I know, I would say that it is the exception when there are not hard feelings that come out between family members when these kinds of decisions have to be made – especially under the added stress of having lost a love one. I know of way too many people who no longer speak to a family member because of such disputes. If you have anyone who depends on you or if you have any love or concern for those you leave behind there is no excuse not to do them the service of knowing your wishes in these regards.
With that in mind, would it surprise you to know that I have sent clients home to get a will and asked them not to come back until it is done? These are clients who are working with me to complete full financial plans and who have their assets invested under my care. Often they have many things to do in order to achieve their goals and fulfill their financial plans. However, if we have talked about a will previously and they come back for a subsequent appointment without having completed one I have been known to do nothing else with them until it is done. As a side note, or an underscore to how important I feel this is, I want to remind you that I do not get paid when my client gets a will. So there is no ulterior motive here.
There are a couple ways. The first is to find a competent and respected attorney. This is a costly route, but if the attorney is well-versed in the estate laws in your state it can be the most sure way of knowing that your wishes will be honored in a court of law (and not easily challenged by those who want to change it).
A second way is to get a will on-line. There are several sites out there that provide this service, often for a small fraction of the cost of an attorney. You will find many arguments for and against using such a service. I do not claim to be competent enough in this area to know for sure which is best. You must do the work at this point and determine what you feel best about and then move forward.
One thing I am confident about, though, is that you need a will and if there is no way that you are going to be able to afford an attorney then by all means please at least use one of these sites. The prices that I have seen run between $60 and $140. At least in this way there will be documentation of what your desires were.
Now, go home and get a will and don’t come back to this site until you have!
* This article is commentary on basic principles. In no way should the things said in the article be construed or interpreted to be advice for your specific situation. Before making any financial decision you should consider all factors and consult with a professional.
Occasionally someone will need some extra attention in getting started with the YNAB system and we’ll work with them through either YNAB Coaching, the forums, or sometimes just with a few quick emails.
90% of the time the ranting is something like:
I’ve written extensively when it comes to living within your means. For the most part, when it’s mentioned, people think one way:
Living within your means.
When perhaps they should be thinking another way:
Living within your means.
I’d like us to start thinking about the more enjoyable part of this platitude. Would you rather figure out a way to save $50, or make $50? And then the next obvious question is of course, “Why not do both?”
Too often when the realities of your budget are staring you in the face, you turn toward the left and start hacking away at expenses (come on guys, let’s be realistic, you will need to buy clothes eventually) until you’re left sitting at home watching re-runs of Silver Spoons, analyzing the poor spending habits of Edward Stratton III — and it’s Friday night.
Let’s turn to the right and focus on increasing your means.
This glance right happened to me during the summer of 2004. As a result, I decided I’d sell mine and Julie’s budgeting system to the world. Hopefully the story has a happy ending.
There’s a relationship, honestly, between the amount of income, both in the short- and long-term, and the upfront time required to make things happen. I slaved away at the keyboard to create the following professionally-designed-publish-quality visual representation:
You can see that a large upfront investment of time may do very little for income now, but can have a huge impact on future income. Examples may include furthering your education, networking, building your career or starting a side business.
A small upfront time investment can yield a significant short-term increase to your means, but does not have the cumulative power of long-term investing in other income sources (which is why the Future line’s area is filled). Examples of short-term bursts to your means may include selling stuff, working overtime, or picking up odd jobs.
FMF over at FreeMoneyFinance has a phenomenal list of ways to increase your means in his Guide to Making Money. My two favorites include:
Oh and, let’s not forget the best way to increase your means: Invest and eventually live off the earnings.
Being frugal is all well and good, and I enjoy the Frugal Fight as much as the next guy, but I suppose I enjoy the task of increasing my means even more. After all, there’s a lot more to life than Silver Spoons.
This post was inspired by JD’s Father’s Day Post at Get Rich Slowly.
My mother and father are both currently visiting Jerusalem. They left on Thursday and won’t be back for two weeks. My mom asked each of the (six) kids to write something for our dad that she now has probably given to him. I wrote him a few-sentence letter stating my admiration for some of his (many) great qualities.
Julie and I are staying at their house with the three kids down here in Arizona — waiting to settle on a house we purchased (but having our lease run out at the house were renting about a week too early!). So this is an interesting time to write — being surrounded by a place that holds about 16 years of memories for me.
Staying in line with money topics, I want to share a few things I’ve learned from my dad regarding money. He’ll probably never read this because I don’t believe he knows what a blog is, but this is for him nonetheless.
My dad taught me to take care of the things you have. Cords to appliances are always wrapped nicely, tools are always put away, etc. He always related the story of the man going door-to-door looking for donations. He stopped at a house and, before he rang the doorbell, overheard a man in the back yard scolding his son for leaving some nails out in the grass. “These nails are rusted now and aren’t nearly as useful!” The man at the door thought to himself that this was probably an exercise in futility — to ask a donation of a man that cared about a few nails. He rang the door anyway and the man ended up giving the largest donation the man had ever collected. Lesson: Understand Value.
My dad taught me to work (he may claim he didn’t successfully). When I was twelve I was tasked with mowing our 1/2 acre yard. Our lawnmower wasn’t the kind that pulled itself — it took some heav-ho pushing – especially for a 100 lb. 12-year old kid. Pushing that thing I think I looked more like those guys cruising on their choppers, with their arms up high. The lawnmower was a beast to push. It took me about 3 1/2 hours to do the front and back. I would put it off, which would only make things worse because the grass would be so much longer. The grass catcher would be heavy and I had a hard time dumping the grass into the bins. I had an even harder time dumping the bins full of grass into our mulch pile in the very back of the yard.
As time passed I became taller and stronger. By the time I left home I could finish both yards in an hour, do a better job, and enjoyed the entire process. To this day, I love mowing lawns. Lesson: Learn to Work.
The first personal finance book I read was The Richest Man in Babylon. I devoured it. I don’t remember how old I was — probably pre-teen. When I was 14 my dad gave me a book from a talk-show host that was starting to make his mark, named Dave Ramsey. The book was Financial Peace and I loved it. I credit that book’s principles with keeping me out of debt all these years. I’m thankful to my dad for recognizing good principles and passing them on to me. Lesson: Read.
My Dad’s an attorney (a nice one!). He’s always been able to provide for us. He claims to never really have been “book smart” but somehow he made it through Law School. He claims he’s always had to work harder to be average than the your average-average guy. I don’t buy in to my Dad’s whole, “I’m not too smart” facade he puts on. Where do my dad’s smarts come from? His dedication to his family. As a kid I was blessed by the fact that I never once thought there wasn’t enough money for food, shelter, and clothing (though maybe not the exact clothing I wanted – like Air Jordans…). My Dad worked so we had all the things we needed. He openly states that he’s never really enjoyed being an attorney, but doing that he provided for his family and, in that, found his purpose. Lesson: Provide for Your Family.
My Dad taught me to play chess when I was very little – probably six? I have a hard time remembering. I do remember lying on my stomach staring at the board, and being beat time and time again. Not just beat – slaughtered – in very few moves sometimes. I don’t know what our overall record is, but he’s winning. When I was 14 we were on vacation and I beat him — three times in a row. It rattled him good and I still relish the moment. But for eight or so years, he beat me again and again and again. Lesson: No Freebies.
Thank you Dad!
It is unfathomable to me, in the midst of an economy that is wavering, to hear the presidential candidates talking about tax increases! How can anyone who looks at things from a rational, logical perspective think that increasing our taxes is going to help? Of course, I know that they want to give an economic stimulus in the near term, but an increase in taxes will completely destroy any benefit that a stimulus will bring.
Believe it or not, this is what is being offered as one of the “solutions” out there. First, they are talking about eliminating the cap on the Social Security tax. That would mean that every dollar of earned income would be taxed at 15.3%, without limit. Next, they are talking about bringing the top tax rate back to 39.6%. Finally, if you live in a high income tax state like Oregon or California you will pay another 9% (9.3% in CA). So, here goes the math: 15.3 + 39.6 + 9.3 = 64.2% marginal tax! That doesn’t even count the sales taxes, property taxes, etc., etc. Does it sound good to you to go to work and know that out of every new dollar that you earn you will only take home $0.35? Add CA sales tax to that and you are left with $0.32. Add in gas tax, property tax, tolls, license fees, business taxes passed on to consumers, phone and utility taxes . . . this is legalized theft!
Please, don’t ever say that in my presence. There are too many things to say about this to fit in this entry. Let me put it to you this way: How on earth do you think the not-so-rich get their money? See if you can follow this logic:
Tom is a wealthy man who owns a successful business. He wants it to grow. He also needs to support his family. He needs to take home a certain amount of money to do that. Beyond that, the money that he earns will be invested back into the business so that he can make even more money. He knows that as his business grows to certain points he will need to hire more help because he just can’t do it all himself. That is okay with Tom because he plans to make more money by growing the business than it costs him to hire someone (otherwise he wouldn’t do it). Now, with more help Tom is able to make even more money. He takes some of the extra home, but also reinvests the rest of it into the business in order to grow even more. In the process he is providing more jobs.
Next comes along a new President and Congress. They increase Tom’s taxes by 15% (because he’s “rich”). Now Tom has a choice. He can do the same amount of work and watch his income decrease by 15%, or maintain his lifestyle and lay off some of his employees? Remember – Tom’s a selfish rich guy. So, he fires some people.
Who got hurt by the increase in taxes? Who can afford a tax increase, or more importantly, who can’t afford one? Now, a bunch of not-so-rich guys are running around without jobs and without money to spend. This begins to make the economy worse because there is less spending (both from the out-of-work guys and those who are afraid they might be out of work next week). Also, more people apply for government help. Those people are also not paying taxes anymore because they aren’t making money. Now the deficit grows and the government needs to make it up by what? You got it! Tax the rich!
You can replace the rich guy in that story with “Big Oil” or whomever you want. The only people that get really hurt by tax increases are the ones who think they aren’t paying the taxes. And yet they are the ones who get duped into voting for them.
The problem with this whole scenario is that it takes a while to play out. The changes don’t take effect immediately (except on Wall Street). They often take years to fully appreciate. So if today’s Congress and Whitehouse increase taxes it is often the next Congress and Whitehouse that live through the results. The same is true of the opposite. The positive effects of a tax decrees often take effect in subsequent administrations. By then it is too long for the perpetrators, or even the reason for the booming economy or recession to be linked to the results by the common observer. And so we go on in this senseless cycle.
By the way, even with all of the tax cuts of recent years we are only down to paying approximately the historical average tax rates for our country. We had to take significant cuts to get down to the average. If we go up to these higher rates that are being proposed we will be far above our historical average. That cannot help but take a toll. We will never be able to continue as an economic leader in the world with a 64% tax rate. No nation ever has.
* This article is commentary on basic principles. In no way should the things said in the article be construed or interpreted to be advice for your specific situation. Before making any financial decision you should consider all factors and consult with a professional.
Jesse
In 2003 the United States Congress passed into law something truly great. With the passing of the Budget Reform Act, a little known, little understood, but very powerful tool was created for taxpayers called a Health Savings Account. And with this tool Congress gave us something that I believe is the best deal we have gotten from Washington in a long, long time.
An HSA is an opportunity given to individuals and families who have high deductible health insurance plans to save for their medical expenses, with tax benefits attached. It allows individuals save up to $2,900 ($5,800 for families) per year ($3,800/$7,600 if over 55), and when they do so they get a tax deduction (above the line) on that year’s tax return. Then, for as long as the money remains in the HSA it grows tax free. Finally, when the funds are taken out of the investment for medical reasons they come out tax free as well. Did you catch that? If you put money into an HSA and use it for medical reasons it is never taxed! There is nothing else like it.
Yes, subject to three big “ifs.” You can deduct out of pocket medical expenses on you tax return if you have enough other deductions to itemize (not just take the standard deduction), if your income is not so high that your itemized deductions begin to be reduced by formula at the end of Schedule A, and Big If your medical expenses exceed 7.5% of your Adjusted Gross Income (AGI). Only expenses over 7.5% of AGI can be deducted. That means that if you make $80,000 this year the first $6,000 (80,000 x .075) of medical expenses cannot be deducted.
So, if you open up an HSA and fund it during the year you automatically get the benefits of a tax deduction. This is the case even if you spend the same money on medical costs a week later. You could literally know that you have a $1,000 medical bill coming, put the $1,000 into your HSA and then go pay the bill the next day. Just for doing so you get the deduction. However, in doing it this way you only take advantage of one of the tax benefits.
If you have the money, an even better way would be to fully fund an HSA each year and then pay for medical expenses out of pocket. Then you would get the deduction for the HSA. On top of that you could also get the itemized deduction for medical expenses (subject to the things mentioned above). The money in the HSA would grow tax free. Then when you need it for medical expenses that you can’t afford in the future it would come out of the account free of tax as well. Double the deductions while you are in need of them and then get the money tax free in the future when your income is lower (such as in retirement).
In almost all cases I would give an emphatic yes! I have spent many, many hours analyzing health insurance options for myself and my clients. I look through 100+ options for a person or family, taking into account the premium, deductible, co-insurance payments, etc. When all costs are considered together, higher deductible plans work out to be the better deal almost every time. This is actually a good topic for a future blog entry. Anyway, HSA plans on there own are often the best deal in health insurance, and then when you add in the tax benefits they are even harder to beat.
For those in the higher tax brackets, as well as those who are eligible for employer retirement plans, there is an additional bonus to an HSA. As you probably already know, your ability to contribute to an IRA or Roth IRA is phased out and then eliminated at certain income levels. There is no income limitation on eligibility to contribute to an HSA. This is a way that you could contribute to something much better than an IRA even when you can’t contribute to a Traditional or Roth IRA because of your income. Also, with many retirement accounts you are required to begin withdrawing funds (and being taxed on them) once you reach 70 1/2. With an HSA you can leave the money growing in the account until you need it.
The answer to this depends on your age. If you are not 59 ½ or older during the year there is a 10% penalty plus taxes for pulling the money out for non-medical reasons. Once you arrive at 59 ½ the penalty goes away. At that point you will pay taxes on the money you use for non-medical purposes, just as you would if you used money from an IRA or other retirement account.
In order to take advantage of this incredible opportunity you must first have a “High Deductible Health Plan” (as defined by congress). Also, you (and your spouse) must not be eligible for employer sponsored health insurance (unless the employer offers an HSA plan). The easiest way to know if a health plan meets the definition of “high deductible” is to ask the insurance company or agent. Every company that I am aware of offers at least one (and usually several) HSA eligible plans, and usually it is indicated in the name of the plan. (By the way, “high deductible” is only $1,100 for an individual or $2,200 for a family). Also, you cannot contribute to an HSA after you turn 65.
Once you have an HSA eligible plan the next step is to actually set up an HSA account. Most health insurance companies do not offer the actual savings account, but require you to do it through a third party instead. This is most commonly done at a bank. As HSAs are a relatively recent creation there are not a ton of options out there yet. And unfortunately many of the options do not pay a lot of interest. However, with a little research you can find some good deals. One national bank that I know of actually offers six types of investments for the funds – anything from a money market account to 100% stock mutual funds. So if you are pretty confident that the money you are putting into your HSA will be there for a long time before you need it you would be able to invest it a little more aggressively and make it grow.
Once you have established the account the bank usually issues a debit card for you to use to pay for your medical bills. This makes getting money out of the account very easy. Just don’t accidentally use it to buy gas or groceries!
A great life tips blog, DumbLittleman, featured an article I wrote about Rule One. Just wanted to share if anyone’s interested in popping over. The blog’s got some great articles running the gamut of personal development.
In times past, access to financial planners was something for those already well-to-do, with money that needed some direction. Thankfully, with the advent of the internet and the scaling that’s possible, professional financial planning is right at your fingertips for a fraction of the cost.
A financial planner’s job is to gather information from you about your current financial situation and your desired future situation. You take your goals and aspirations and you build a roadmap for how you’ll get there. eFinplan does just that with a straightforward web interface.
Knowing the best way to learn is by doing, I spoke with a co-founder of eFinplan, Kent Irwin, and he let me give the software a test run. Because the software is so straightforward, I’m not going to talk about how to navigate it or anything like that. If you’ve filled out a form online before, then you can use the software. What I’d like to talk about, and the part that got me so excited, was the end product.
When I finished entering my financial information into eFinplan, I was given a 63-page comprehensive financial report. Emphasis on comprehensive. It’s broken down into easily-digestible sections so no need to feel overwhelmed. You can just work through it one bit at a time.
To be clear: the document is in no way an advertisement for anything. My first though was, “Oh, they’ll get this information and then be able to refer people to planners or insurance brokers.” I was dead wrong. The report is a plain vanilla report chock full of information.
Section 1: Present Financial Condition
The first section deals with how things are right now: a statement of net worth and a breakdown of capital assets (between taxable and tax-advantaged funds). An example of a tax-advantaged fund would be a traditional or Roth IRA, or a 401k, among others.
You then work through some basic assumptions (which are adjustable, but I recommend you leave them at the default) such as your life expectancy, expected rate of inflation, expected expenses at retirement and a slew of others. Just stick with the defaults and you’ll be fine :)
Section 2: Future Goals
Section Two is where things start getting fun. You work through your future goals (Maui+Golf, just for instance) to see if you’ll be able to fund those goals.
The great thing about eFinplan is that it’s not just a data output (from what you just input). It actually walks you through and explains the what, why and how of the whole plan. That’s where the value really is — in the education.
Continuing on with the goals section, it breaks down each of your retirement years and shows how your cash flow situation might be. If you worked things into your plan like funding college for kids (can you say expensive, hello?!), you’ll see a breakdown of how much you’ll need to contribute to meet goals for each of your kids, how much tuition is expected to be, etc.
As part of the college funding section, they give you a nice, consolidated report on the different funding opportunities available (529, UGMA/UTMA, etc.). It was nice to have all of that presented in one place instead of spending an hour on Google. It even educates you on various tax credits and deductions that make college funding easier.
As part of your future goals, you may have some milestone such as the purchase of a home (that was ours). That will be factored into your situation to make sure you don’t overestimate your retirement nest egg by not considering that hit.
At the end it gave a brief synopsis of my goals to:
Section 3: Investments
Section Three is all about your investments. the eFinplan does a great job of teaching you about risk tolerance, diversification, risk vs. return, etc. It’s like having a financial planner teach it to you, but you can refer to this forever without having to pay again :)
You’re taught about the various asset classes (large cap, small cap, foreign, bond), selecting the right security (bond, stock, etc.) and timing the market (don’t!). You’re then instructed with great summary information about how different risk tolerance plays to different asset classes and their historical performances.
You’re then presented with what your asset allocation is verses what it should be. The eFinplan goes through rebalancing (there are funds that do this for you automatically).
Section 4: Risk Management
The eFinplan looks at your emergency reserves, property and casualty insurance, life insurance, etc.
The eFinplan gives great advice on cost saving tips for property and casualty insurance and when it comes to life insurance the information simply blew me away. It’s not that the information is secret or anything like that, it’s just that they present the different insurance options (term, universal life, variable universal life, and whole life — as an aside, I recommend term for 99% of people) with a brief descriptions and advantages/disadvantages of each one. Again, the information provided is stellar – it’s a great future reference.
The risk management section continues with disability, and long-term care insurance (again, with great comprehensive information).
Section 5: Your Spending
This is the section where YNAB comes into play as your method of aligning your spending with your values. The eFinplan analyzes your debt-to-income ratio and lets you know where you stand (I’m a fan of no debt), gives you solid advice regarding credit scores, taxes, trusts, health care, etc. The list goes on.
Section 6: Legacy Planning
This is the section where you’re reminded to get a will, a power of attorney, a living will, etc. Vital for anyone that would leave people behind over which you have financial responsibility.
Section 7: Implementation
The eFinplan report then walks you through which advisors you may need, and gives you great advice on how to select them. At the end of section 7 you have a consolidated report of action steps necessary for you to meet your goals.
The nice thing about how the report is organized is that each section has definable action steps that you should take, with a checklist to make sure you don’t miss anything. The eFinplan, for me at least, served as a great reminder of where I am, what I want to accomplish, and how I can get there. In comparison to the cost of a financial planner, it’s an absolute bargain.
I’d encourage you to check it out. Consider it an experiment. You won’t be disappointed with the end product (though you may get a kick in the pants telling you to start taking more action — but that’s a good thing!).
If you’re budgeting’s going well, your logical next step is planning. It’s basically what you get to do with that cash flow you’re finding!
It’s not very often I simply post to the blog to send you somewhere else, but this post over at NCN (No Credit Needed) summarizes my feelings of late exactly.
It’s definitely worth a read.