A Delightfully Savage Experience

I just returned from the annual conference for the Alliance of Cambridge Advisors, the leading organization of fee-only financial planners.  Three packed days of sessions were terrific, as always, but one session was a special treat.  Terry Savage, the Chicago Sun-Times columnist and well-known author of The Savage Number and The Savage Truth on Money, was a featured speaker.  She’s currently on a nationwide tour with financial literacy as her mission.

She was genuinely delighted to find a conference full of like-minded souls and spent just as much time asking us questions about fee-only financial planning as she did sharing wisdom.  If you get the chance to hear her speak, I recommend going.  She motivates and inspires while explaining financial concepts in ways anyone can understand.

Her website has a nice collection of useful calculators as well as archived columns she’s written for the Chicago Sun-Times. Check it out here: www.terrysavage.com

What’s in Your Wallet?

Following up on the last newsletter article about cataloguing your home inventory, there is another step that you can take to reduce the significance of a lost wallet.  Although you may lose your punch card to the local sandwich shop, you will have already given yourself a big head start on the road to recovering what you hold in your wallet.

 I highly recommend taking the time to go through your wallet and scan (double-sided) everything in there that you consider to be valuable. This gives you a record of all the contact information you need to replace the contents as well as makes things much simpler when you are fighting against potential identity theft.   Update the scan once a year – make it a habit to do during Financial Planning Week!

Athletic Scholarships – I Want One!

I admit it; I’m an Olympics junkie.  Winter, summer, doesn’t matter, I love watching the games. This past week as I’ve watched the Olympic trials I’ve heard the commentators talk about how many of the athletes were on college scholarships. What are the odds of getting an athletic scholarship?  Turns out, they are pretty long.

Athletic scholarships, especially the coveted full ride, are rare. In 2011, there were 19.7 million college students, according to the National Center for Education Statistics.  According to the National Collegiate Athletic Association (NCAA) website, $2 billion is provided annually to 126,000 student athletes at its Division I and II schools.  Division III schools technically can’t award athletic scholarships though they do offer athletes merit or leadership scholarships. The National Association of Intercollegiate Athletics provides $450,000 annually to 60,000 student athletes.  Very few of the scholarships are full rides; most are divided among several athletes to subsidize tuition, books, or fees.

If you put all those numbers together, less than 1% of those students are attending college on athletic scholarships.  If you have that one-in-a-hundred child who has the right combination of ability, drive, and passion, there’s a chance he or she can earn a partial scholarship but you need to have a plan for covering the rest of the cost of college. Here are some suggestions:

  1. When your child is young, establish a college fund using a 529 plan and set up monthly automatic payments to it.  Even if the amounts are small, say $50 per month to start, the most important thing is to start.  For Colorado, www.collegeinvest.org is the place to begin.
  2. Control your spending on those sports activities.  Between clinics and off-season camps, private coaching, gear, and travel tournaments you can easily spend thousands per year for your child.   Take advantage of your team’s fundraising opportunities to keep those costs down.  I promise I’ll buy Butter Braids, pies, coupon books or tickets to spaghetti dinners if your athlete asks me.  Share travel expenses, make it as efficient as you can.  And, sometimes, say no.
  3. Maximize your own retirement funding.  Contributions you make to a Roth IRA can be withdrawn free of tax to pay for college if needed. But don’t sacrifice your own retirement for your child’s sports.
  4. Focus on academics.  In college recruiting, a great student who is a really good athlete stands a better chance of being awarded a scholarship than a great athlete who is a marginal student.
  5. Make sure that it’s your child who wants to play sports in college, not you.  It can be tremendously rewarding but it is a lot of work and a lot of pressure.

Later this month when the London Olympics begin, I hope you enjoy watching. If your child is inspired to train for the 2020 games or beyond, that’s great. Just make sure to tuck funds aside for college, too.

New Healthcare Tax – Tell Me Doc, Is it Going to Hurt?

Last week the U.S. Supreme Court upheld the constitutionality of President Obama’s healthcare reform legislation which means we’ll see a couple new taxes take effect in 2013.  Overall, I think the impact of these taxes is small, though we’ll want to manage them as best we can.

The first tax is an increase of the Medicare tax .9% on earned income above $200,000 for individuals or $250,000 for married couples.  As an example, let’s say one spouse earns $200,000 and the other earns $150,000 for total earnings of $350,000.    The couple will owe $900.

The second tax is on investment income and, again, targets high-earners.  It is a 3.8% tax on investment income above the $200,000/$250,000 threshold. It includes capital gains, royalties, interest, rents, and other nonwage income.  It doesn’t include life insurance proceeds, IRA distributions, pensions, or Social Security income.  If, for example, an individual taxpayer earns $210,000 and has $10,000 in long term capital gains, the taxpayer will owe $380 of additional tax.

Details and final guidance from the Internal Revenue Service won’t be available until later this year but it’s important to note that there are two other tax changes happening that will have a far bigger impact.  The first is the scheduled expiration of the Bush tax cuts.  If the cuts expire, everyone’s taxes will increase, not just those of high-earners.  Dividends will be taxed at ordinary income rates; long term capital gains will be taxed at 20%.  The second is the scheduled expiration of the estate tax cuts.  Unless new legislation is enacted, in 2013 estates above $1M will be taxed at 55%.  Ouch!

On the bright side, there’s a lot of good stuff in the healthcare reform.  Keeping adult dependents on family policies up to age 26 already is helping millions of parents sleep better at night.  Beginning 2014, insurers can no longer drop an individual if he or she becomes sick, can’t refuse coverage for pre-existing conditions, and can’t set annual or lifetime limits on care.  And as states set up insurance exchanges we may finally have an affordable health care option for early retirees.

As the year progresses, we’ll work together to take the appropriate steps to minimize your tax obligation wherever we can.  If you have specific questions on these new taxes please don’t hesitate to email or call.

Moving Forward on Your Own – Kathleen Rehl

Moving Forward on Your Own – Workshop for Widows & Those Who Care

Saturday, August 4, 2012 from 2:00–4:00 PM
at the First Evangelical Lutheran Church of Longmont

803 Third Avenue, Longmont CO  80501

Light refreshments available at 2:00 PM

There is no charge to attendees, but advance registration is required.
Call 1-800-579-9496 or email Bob.Kuehner@lfsrm.org

Join us for a special presentation by Kathleen M. Rehl, Ph.D., CFP®, award winning author and speaker. She presents practical information in an engaging and entertaining manner, along with issues of the heart. The workshop is open to all . . . although it’s especially designed for women. So, bring your gal friends for an enjoyable afternoon out together.

Disaster Preparedness

So far this year over 600 families have lost their homes to wildfires here in Colorado.  When disaster strikes, whether it a hailstorm, tornado, hurricane, earthquake, or wildfire, the process of filing insurance claims and rebuilding can be lengthy and frustrating. With good records claims are processed more quickly and with higher payouts than without.  During our Insurance Review, we discuss the importance of documenting your possessions and I thought now was a good time for a reminder.

If you haven’t any records of your possessions, please take time this evening to take digital photos or video of what you own.  Just 30 minutes – that’s all I’m asking! Walk through your home, room by room, and take a picture of everything you see.  Open drawers and closets to photograph items that are out of sight. You can also probably skip taking pictures of items in your house that are not of much value; for instance, teenagers. (I’m joking, we know they are priceless).  Don’t forget the garage and the deck.  Make a copy of the photos or video and store it in a safe deposit box or somewhere safely offsite.

If you have recently made photographic records, great! Now, I encourage you to take the next step – a written home inventory.  Create a spreadsheet and, room by room, list each item, its purchase date and cost. Start at the top of the house and work your way down. Store a copy of this offsite with the photographic records.  And, if you never need to file a claim, consider yourself fortunate!

Lastly, make sure your homeowner’s policy is for guaranteed replacement cost, rather than actual cash value.  It will cost 10-15% more but it’s well worth it.

Gold: a Smart Security or a Hefty Gamble?

If all of the world’s gold were squished together, it would form a cube just 68 feet on each side.  That’s a very small amount of gold in a very big world.  No wonder it’s so expensive.  In times of economic uncertainty people often rally around what they see to be smart, safe investments.  For some people this is treasury bonds and low-risk stocks, for others it is physical assets like gold.  Although gold does have substantial value, ($1,567.90 per ounce as of May 25th) nothing can be produced from it and thus the only value gained from it is having it when others do not.  This is also a quandary because the price of gold can only rise when it is highly sought after, meaning that many people must buy gold in order to keep the price of gold up.

There are tangible benefits to owning gold, such as fiscal security in the event of an extreme economic downturn or global disaster. However, the astute financial mind of Warren Buffet likens it to building a bomb-shelter in your basement.  If you ever end up needing the bomb shelter than you have made a terrific purchase. However if no crisis occurs where a bomb shelter is necessary, you will be stuck with the sunk cost of a bomb shelter.  I suppose it could make a decent man-cave.

The uncertainty in economies and markets has helped feed a frenzy in gold-buying.  GLD, the exchange-traded fund introduced by State Street in 2004 is the second-largest ETF measured by assets under management.  But with an average daily trading volume of over 10 million shares it seems that buyers aren’t  ‘investing’ as much as they are placing a bet.  Nothing wrong with trying to win a bet but with gold trading at historical highs maybe there are better bets to place.

Digital Spring Cleaning

For the last month or so, I have started off my day by opening a text message from some foreign number promising me “great $$ deal$ on vacation retreat$$” or something along those unsightly lines.  I don’t know about you, but for me spam phone calls and e-mail were enough to deal with already; so I took it upon myself to do some digital spring cleaning.  With the growing digitalization of many facets of life, it is becoming harder and harder to keep personal information personal.  The two easiest targets for advertisers and spam to exploit are e-mail addresses and phone numbers, which now-a-days are required for accomplishing or purchasing practically anything.

E-mail

E-mail spam has been around for years.  There have been MSNBC programs about prolific spammers and why people spam, but unfortunately the spammers have harnessed new technology to make spamming even easier.  The best way to prevent spam from reaching your inbox is to use an accredited e-mail service and their respective spam notification system.  Hotmail, Yahoo and Gmail all pride themselves in preventing spam but a few messages still slip through the cracks.  Aside from choosing a secure email service, do not ever post your email address online, and be wary of phony-looking websites that ask for your email address or other personal information.

Text

Text spam is a newer form of spam that has taken off with the amalgamation of telephones and the Internet.  Sending messages via the Internet costs the spammer nothing, but could cost you something depending on your data plan.  An easy way to get rid of spam is to call your service provider and ask them to prevent all Internet messages from getting to your phone.  If you still encounter spam after this, the next best step is to forward the message in question to 7726 (SPAM), which will alert your service company that the message your received is from a spammer.

Phone

The quickest way to get rid of telemarketing calls is to visit the National Do Not Call Registry at www.donotcall.gov  Simply enter your information and within thirty days you will no longer receive those annoying telephone calls.  Unfortunately this does not apply for calls from political candidates, as the government believes we should be fed a large ration of fabrication and slander leading up to the election.

Catalog Mailing Lists

Although the process to remove yourself from catalog mailing lists requires more work than the previous 3 options mentioned, once you get the hang of it it is the easiest of them all.  The best way to do this is to go to catalogchoice.org and sign up for free.  Once there you can enter the names of catalogs that you no longer wish to receive, and after providing your address and the customer ID and key from the back of the catalogs you will be kept up to date on the status of your cancellation.  As you cancel your subscriptions, the website also tracks the trees and gallons of water you have helped save, as well as the reduction in greenhouse gases and solid waste your cancellation has made.

Students and their Mountains of Debt

Student debt as become so commonplace in today’s society that it might as well be labeled the “student debt crisis”.  Over two thirds of recent college graduates leave the school with some form of debt, and the $870 billion of total student debt right now is enough to equivocate to nearly $2,800 per American.  Student debt has become such a problem that it has even surpassed credit card debt in terms of both money owed and delinquency rates.  What is truly staggering about this is that the United States citizens’ credit card debt of $697 billion comes from 80% of the population who own credit cards, compared to only 15% who have student loans.

The student debt crisis can largely be traced to the almost disgusting increase of college tuition over the last 30 years.  Since 1982, the cost of a 4-year college tuition has risen by 400%, which really causes problems when taken into account that the Median Household Income over this time has only risen by 150%.  Many prospective college students of today are also under-informed or misinformed when they are making their decision on where to go to school as well as how to fund it.  Most students go into college with the expectation that they will be able to get a job relevant to their degree right out of college, and thus will not need to worry about their expensive student loans.  This has not been the case, and as the economy continues to twist and turn, more and more recent college graduates are finding themselves in a bind.  Student default rates rose from 11.6% to 15% in the last fiscal year as over 9% of recent college graduates find themselves unemployed.

Fortunately there are a few things that can help with the payment of loans, such as loan consolidation or forgiveness.  If you know someone who is saddled with student debt and unsure of their options,http://www.finaid.org/loans/forgiveness.phtml  and http://www.finaid.org/  are loaded with information on student loans as well as ideas on how to lower your debt.

Volatility

vol’a•til’i•ty
The state of being volatile
1. The state of having a low boiling point and evaporating readily
2. (computing) The state of not retaining data in the absence of power
3. The state of being able to fly
4. The state of being unpredictable
5. (Financial markets, countable, plural volatilities) A quantification of the degree of uncertainty about the future price of a commodity, share, or other financial product
Source: http://en.wiktionary.org/wiki/volatility

Life is full of ups and downs. While we can anticipate some events, such as when a child is born or we close on our first house, but we’re thrown off by others, such as a job layoff or a medical emergency. Interestingly, one person’s up is another one’s down, such as when the youngest leaves home for college. (I cried for a month, my husband broke in new golf clubs). Throughout our lives, then, we experience periods of stability – same ol’, same ol’ – and periods of volatility.
The same holds true for stock markets. Periods of stability are followed by periods of volatility and right now, we’re in the midst of a volatile period. One day the markets are up and all the indicators are green and the next day they’re down and everything has turned red. The third day could be green or red; it’s hard to say. In such volatile times, attempting to anticipate the impact of any new piece of information seems futile because that news can quickly be swallowed up by newer news and so the volatility continues.
So what can we do about it?
1. Accept that volatility exists. When you invest, recognize that the prices of your investments will rise and fall, sometimes sharply. As much as we would all like the rise to be a consistent upward movement, it just doesn’t happen that way.
2. Have a long term investment plan and stick to it. Let’s say your investment goal is to stop working and retire in 15 years. Your plan includes saving a certain amount per year and investing so that it grows over this long-term. Stay with the plan. Making long-term investing decisions based on each day’s market news can throw a wrench in your long-term goals.
3. Understand your emotions and keep them out of your investment-decision process. Making long-term investment decisions based on emotions such as fear or greed causes you to lose. You end up buying stocks after prices have gone up and selling them after they’ve gone down. And then you kick yourself so don’t do it.
4. Don’t take more investment risk than necessary to achieve your goals. At a basic level, this simply means don’t have too much invested in stocks. But it also means having a proper investment mix (stocks, bonds, cash) and diversification (not too heavily invested in a single company, industry, or country).
5. Don’t look. Sounds crazy but this period of volatility will end at some point. If you find yourself checking your portfolio daily, stop. Unless your plan and your goals have changed, looking daily isn’t going to do any good. Make sure your overall financial is in solid shape and let this period of volatility pass.