Monday, February 20, 2017
Personal Finance 101
It is President’s Day in America today February 20. On a day when the Presidency in America is being keenly observed as an institution in great change and on a day we celebrate the 55th anniversary of John Glenn’s first orbital flight in space.
All of my Rink Rats Blog readers are very astute at managing their financial affairs, but like yours truly, every now and then you either get careless or shortsighted.
Time for our annual RR brush up on personal finances:
BEST PRACTICES FOR RECORD-KEEPING –
- Organize files and cabinets logically, and keep the system current.
- Don’t let filing get backlogged, and don’t file duplicate copies with originals.
- Sensitive and confidential files should be kept secure in a separate locked file cabinet.
- Original documents should be kept in a safe deposit box.
- Create file retention and destruction policies; in todays’ age of digital records kept paper trails for three years.
WHICH IS BETTER A WILL OR LIVING TRUST? –
One of the major differences between wills and living trusts is whether the estate has to go through probate, which is the court process that typically follows death. Living trusts avoid probate while wills do not.
Probate isn’t a big problem in many states, but in some — including California — it can be protracted, expensive and often worth avoiding. Another advantage of living trusts is privacy. While wills are entered into the public record, living trusts aren’t.
Living trusts can help you avoid another court-supervised process called conservancy. If you’re incapacitated, the person you’ve named as your “successor trustee” can take over management of your finances without going to court. To avoid the court process without a living trust, you’d need separate documents called powers of attorney. If you have minor children, your living trust trustee can manage their money for them. If you have a will, you would need to include language setting up a trust and naming a trustee.
One big disadvantage of living trusts is the cost. Although price tags vary, a lawyer typically charges a few hundred dollars for a will, while a living trust may cost a few thousand. Also, there’s some hassle involved, since property has to be transferred into the trust to avoid probate.
There are do-it-yourself options, including Nolo software and LegalZoom, that can save you money if your situation isn’t complicated and you’re willing to invest some time in learning about estate planning. If your situation is at all complicated, though — if you’re wealthy or have contentious relatives who are likely to challenge your documents — an experienced attorney’s help can be invaluable.
Whichever you decide, make sure that you have one or the other before too much longer. Otherwise, when you die, state law will determine who gets your stuff and who gets your kids.
START 2017 WITH A FINANCIAL CLEANSE –
Track your spending for the next 30 days
This exercise is as painful and time-consuming as it sounds. I’m listing it first because it’s the most important step. If you execute just one item on the list, do this.
The practice of tracking will make you more focused and frugal when it comes to spending money. You can compare it to a person tracking all of their calories or recording the weight they lift at the gym.
Assess all recurring subscriptions
Many people use at least one subscription service, such as a gym membership, wine club, meal delivery service, credit monitoring service or video streaming app. There’s nothing wrong as long as you know how many you have and are receiving the value you expect. Ask yourself whether you’d join now if you weren’t already a member.
Save your annual raise (if you are lucky to get one)
Often, merit increases go into effect and bonuses are paid in the first quarter. Make a habit of increasing the amount of your paycheck that goes to savings every time you get a raise. You can do this by increasing your 401(k) contribution percentage or the amount you send to your taxable investment or savings account.
Renegotiate with vendors
This is a tactic from my experience in corporate finance. Every year, we’d list all of our vendors, assess the value of each and try to renegotiate better rates. Consider your cable, Internet and phone service as a starting point and get more creative from there.
Book your 2017 travel early
If you aren’t a planner, this can be tough. However, you might already know a few weddings or family events you’ll need to travel for this year. Bite the bullet, open your calendars and book a few months ahead of time. Look for no-fee, refundable options when possible. Some airlines have better policies than others, and most hotels let you cancel without a fee up to a few days in advance.
Record your charitable giving
Setting up a tracking system for charitable contributions is simple but beneficial. In the past, I’ve tracked the big-ticket charitable contributions, but failed to capture several small ones.
Clean out your closets and purge items you no longer need. Get a receipt for your donations. More charitable contributions tracked equals more money in your pocket when you file your tax returns.
Check your credit
It can take some time to remove inaccurate information from your credit report. Request a copy of your credit report now to ensure that everything looks correct. If you wait until a company is performing a credit check, it probably will be too late to report an error, which could lead you to receive higher interest rates or loan denials.
Keeping your finances under control takes time and effort. Now is the time to reflect and recalibrate for a healthy and prosperous 2017.
FIVE FINANCIAL GOALS FOR 2017 –
Set a budget
Knowing where and how you’re spending your money is the first step to getting your finances in order. Start a simple spreadsheet that lists all your expenses along with your net income, or use a budgeting app such as Mint. Look for ways to pare your variable expenses — costs that aren’t fixed — so you fit in funds for savings and retirement.
Invest in your 401(k) or an IRA
If your employer offers a 401(k), you should certainly take advantage of it — even if you start with a small amount, such as 3% of your income. 401(k)s and individual retirement accounts are great, because the amount you contribute can be excluded from your taxable income. Many employers will match your 401(k) contribution, up to a certain percentage, which doubles your contribution each time.
Increase your 401(k) or IRA contribution
If you’re already contributing to your company’s 401(k), bravo! Now, increase the amount you contribute by a percentage point or two. Use the same approach for an IRA. If your employer offers a match, try to increase your contribution to at least meet that match maximum so you reap the full benefits the company is offering.
Pay off your debt
Getting out of debt will mean you’ll have more money to contribute to saving for your future and, ultimately, more financial freedom. One strategy is to focus first on the smaller debts you may have, such as credit card balances, which also may have relatively high interest rates.
Start an emergency fund
Having an emergency fund can offer financial relief and peace of mind in tough situations. Start by setting a goal of saving $1,000 in your emergency fund. Even if you put just $84 a month into an account, you’ll reach your goal within the year. If you need to dip into the account for an emergency, just make sure to replenish that amount.
It’s never too late to get started, so pick one or all the goals listed above and start setting yourself up for your best money year yet.
Finally, the average small investor to stick with low-cost index funds
An index fund is a mutual fund designed to mirror the performance of one of the major indices (e.g., the Dow Jones Industrial Average, S&P 500, Wilshire 5000, Russell 2000, etc.) Unlike traditional, actively managed mutual funds where portfolio managers evaluate, analyze and acquire individual stocks, index funds are passively managed.
Basically, this means they consist of a pre-selected group of stocks that rarely, if ever, changes.
Index funds are ideal for those who have no idea how to evaluate competitive advantages of various corporations, differentiate an income statement from a balance sheet, or calculate discounted cash flows. Because company-specific risk is diversified away thanks to the dozens or hundreds of companies that make up each of the major indices, such analysis is not necessary. In addition, an index fund is a cost effective way to acquire hundreds of stocks while avoiding the thousands of dollars in brokerage commissions that would otherwise result.
Actively managed mutual funds must pay portfolio managers, analysts, research subscription fees and the like. The percentage of a fund's total expenses including its 12b-1 fees divided by its average net assets is known as the expense ratio. Because index funds are non-managed (and require none of the aforementioned expenses), the expense ratio is almost nill compared to the average mutual fund. This means that less of the investor's money goes to paying overhead, compensation and sales charges. Over the long-run, the lower costs associated with index funds can result in significantly improved performance.
BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week Jeff Daniels (62) Chelsea, MI.; Gretchen Pugliese …famous health care manager; Andrew Ross Sorkin (40) Scarsdale, NY.; Maria Suffredini …famous niece.
TAX 101 - Tax time is here and the health care expenses you've paid all year may actually help lower your tax bill, or even get you money back. Here are Rink Rats top 10 tips for making the most of health care deductions.
Tip No. 1: Open an HSA.
Health Savings Accounts are tax-free ways to save money for medical expenses. This can be a good way to save for your future while enjoying tax benefits today.
Tip No. 2: Plan your spending.
Remember you only get deductions above 10 percent of your income. This means that if you can group expenses into one year instead of spreading them out, you'll reap tax rewards.
Tip No. 3: See if you can deduct your premiums.
If you pay for your own insurance, you get tax benefits. Sometimes you get this benefit by paying with pretax money, but if you don't, you can deduct your premiums.
Tip No. 4: Check approved medical expenses.
The IRS' Publication 502 lists all the eligible medical deductions you can take, even unexpected items like air conditioners and weight loss programs - as long as it's doctor recommended.
Tip No. 5: Consider vision and dental.
Expenses incurred by spouses and dependents are also tax deductible. Even expenses of a non-dependent - a parent, for example –may be tax deductible.
Tip No. 6: Include the expenses of everyone listed on your tax return.
Expenses incurred by spouses and dependents are also tax deductible. Even expenses of a non-dependent - a parent, for example - may be tax deductible.
Tip No. 7: Did you need to alter your house?
If you have certain medical conditions, altering your home, as long as a doctor recognized the benefit, are largely tax deductible.
Tip No. 8: Consider travel costs.
Gas money, hotel stays and other travel expenses associated with health care are tax deductible.
Tip No. 9: Always itemize.
Schedule A itemization can help you keep track of what you've deducted. Over the course of the year, keep track of your deductible expenses and save your receipts.
Tip No. 10: 10 is the magic number.
You can deduct medical expenses above 10 percent of your income. This means that if you make $50,000 a year, you can deduct expenses above $5,000.
A UNIQUE PRESIDENT ON PRESIDENT’S DAY –
The son of a Baptist preacher who had emigrated from northern Ireland, Chester A. Arthur was America's 21st President (1881-85), succeeding President James Garfield upon his assassination.
Arthur, a mutton-chopped emblem of the political-patronage culture of the day, was never even elected to the highest office. His ascent was made possible by Charles J. Guiteau, the man who gunned down President James Garfield in a railroad station, thus promoting Arthur from the vice presidency.
To contemporaries, the situation seemed dire. Arthur’s administration surely would be defined by unprecedented greed and corruption, full of woefully underqualified appointees lacking any experience in government. Even the most optimistic American could hardly have imagined that Arthur’s presidency would be a success.
But over time in his Presidency Chester Arthur redeemed himself: He championed civil-service reform, hobbling the “spoils system” with which he had been so closely associated. He restored faith in the presidency, and faith in what the presidency can restore in its occupants. “No man ever entered the presidency so profoundly and widely distrusted as Chester Alan Arthur,” wrote the Gilded Age journalist Alexander K. McClure, “and no one ever retired ... more generally respected, alike by political friend and foe.”
Remind you of 2017? Let's hope so.
POTUS ONE MONTH - 24: Executive orders and memoranda signed. That includes orders to withdraw the United States from Trans-Pacific trade deal, impose a federal hiring freeze and reduce regulations related to the health care law enacted under former President Barack Obama. ... 25.1 million. Twitter followers for @realDonaldTrump. ... 4: Visits from foreign leaders. (Britain, Japan, Canada, Israel.) 1: Cancelled visit from foreign leader. (Mexico.) ... 39: Percent of respondents who approve of Trump's job performance in Pew Research Center poll conducted Feb. 7-12.... 3: Weekend trips to Trump's Mar-a-Lago club in Florida.
COLLEGE HOCKEY PICK OF THE WEEK – Saturday 2/25, 7:00 PM CT, FSN+: #20 Wisconsin Badgers (17-10-1) at #5 Minnesota Golden Gophers (20-8-2). The longtime rivals meet yet again, Ten thousand lakes beat the cheese heads, 6 – 3. Season to date (7-8)
THE SWAMI’S WEEK TOP PICKS –
(NHL, Feb. 25) Anaheim Ducks (31-19-10) at Los Angeles Kings (28-26-4), a must win for the Kings in their battle for a playoff spot, Kings win 3 – 2.
(NBA, Feb. 25) Chicago Bulls (28-29) at Cleveland Cavaliers (39-16), Cavs win in a breeze, 100 – 85.
(Oscars, Feb. 26) Best Picture – La La Land
Best Actor – Casey Affleck, Manchester by the Sea
Best Actress – Emma Stone – La La Land
Best Supporting Actor – Mahershala Ali, Moonlight
Best Supporting Actress – Viola Davis, Fences
Season to Date (19 – 11)
DRIVING THE WEEK – Tuesday is the final voting day for The Oscars prior to next Sunday’s 89th Academy Awards. The Federal Reserve Open Market Committee will release the minutes of its January meeting on Wednesday. They could give an indication of the likelihood of another interest rate increase at the next meeting in March. Tesla Motors will release its fourth quarter earnings report Wednesday. The company has yet to score an annual profit.
Next Blog: Head to the Springs.
Until Next Time, Adios
February 20, 2017
CARTOON OF THE WEEK –Mike Lukovich