Keeping perspective while the debt ceiling “crisis” continues ….

While Congress and the President continue the political battle on the “debt crisis,” here is more for proper perspective:

First, the yield on Treasuries if falling, not rising. If there were a serious issue about the US ability to repay, then US bonds would see high rates. That is, unlike Greece, which is in real trouble, or even Spain or Portugal, the US is still able to borrow at very favorable rates. So, the markets in general, up to this point, believe that the “crisis” has nothing to do with the economy or the strength of the US relative to other nations.

Second, the debt issues have come about after the extended bull market ended in 2008. That is, high stock values and prosperous markets yielded high tax revenues. With this, there were years of budget surpluses, even after tax cuts were enacted. But, post 2008, that has changed. The change in the economy and stock values, even with some markets approaching their 2008 high points, has led to much lower tax revenues.

Finally, from Floyd Norris in the New York Times, we have this summary:

“If rationality does prevail, the debt ceiling will be raised. For that matter, there is no good reason to have a debt ceiling other than to give politicians a chance to grandstand. The important decisions for Congress and the White House concern spending and taxing. Borrowing, or paying back debt as happened for a couple of years before the Bush tax cuts, is a result of the interplay of those decisions and the state of the economy.”
And
“There is a risk that many analysts now are making the opposite mistake. Deficits have skyrocketed in recent years for reasons that are clearly temporary, or that will be temporary if the economy recovers. In some of the debate, the short-term problems are mixed up with longer-term demographic concerns caused by the aging and retirement of the baby boomers and the rising costs of Medicare, the health insurance program for Americans over the age of 65.”

So, with fingers crossed for the prevailing of rationality soon, that is my update. Let me know if you have questions or comments

Summer of 2011 to do list: investing, estate plan, refinance, taxes and planning matters

For this summer, we have suggested financial matters for you to review:

1. Asset allocation and investments – taking all IRAs, 401(k)s and taxable accounts as a single portfolio, reviewing the allocation and checking to see if it is time to rebalance;
2. Interest rates, investing and inflation – rates are likely to stay low, inflation is likely to stay low as well (there is no wage component, in fact wages may be deflationary now, there is only commodity inflation), so that leaves looking at any investment that equals or beats the 10 year Treasury bond at a 3% yield: good municipal bonds, dividend paying stocks, or packaged stocks like Berkshire Hathaway or the Permanent Portfolio mutual fund;
3. Refinancing – rates are back down some, so that you can bring a 30 year loan down to a 4.5% 25 year loan, or 4.25% 20 year, or 3.75% 15 year fixed;
4. Home Equity Line of Credit – rates are still under 3% and no closing costs, so be sure to set one up so you have a fall back source of funds to cover the unexpected
5. Estate plan – reviewing your wills and trusts, and any letters to fiduciaries, to be certain that you account for such matters as the portable credit, which requires an election at the first death;
6. Tax planning – reviewing your information for 2011 against 2010 and checking your options to be you minimize your 2011 and 2012 taxes (e.g., max out 401(k), 402(b), ESPP plans, convert to Roth IRAs in low income years, etc.); and
7. In fact, you could do a Finance Health Day (you own financial planning focus) – please check out Finance health day….

Let me know if you have questions or comments, or if anyone you know wants to ask about any of this material. Also check out Time Saving Tips…

Coming soon…. credit card benefits with real value

Time saving ideas that pay off in tax planning, investments, technology and daily routines

Ben Franklin taught us that “time is money”. In addition, we all know that we have limited time, so every instant is important to us. In fact, each minute involves a choice about how you spend that time.
However, the best use is often hard to sort out. Moreover, tracking time minute by minutes can cloud the real issue, which is what the best use of your time may be.

Tracking your time: However, as a starting point, Laura Vanderkam suggests keeping a journal of how you spend each day. This can show you how much time you spend, say, checking your e-mail every 15 minutes. If you can evaluate your habits with some clear-headed objectivity, you may find ways to spend your time better.

What is your time worth? Here is a financial perspective on the use of your time. Ms. Vanderkam “what is your Minimum Wage” as way to have you test your use of time financially. Her example is the difference between buying and making your own tortillas. When she factored in the time spent against any cost savings, she arrived at a wage of $1.40 per hour. So, was that a good decision for the use of your time? Maybe if your tortillas taste so much better… but often, tortillas are tortillas.

Here are two more taken from my experience: driving an extra 25 miles to save ten cents per gallon on gas probably nets out to the same total expenditure, after factoring in the gas used to get there, let alone the time. Replacing the brakes or McPherson struts on your car may seem to save money. However, when you factor in six hours or more spent, and the clean up, you have a fairly low minimum wage calculation. It is often better hire an expert and spend time with family.

Dangers of Technology: Another author suggests three time wasters from new technology: texting, remote access and last minute preparation. Geoffrey James finds that each of these appears to save time, but embodies significant risks. For texting, the response is immediate and you have a full record of the communication. That may not be to your advantage in business or personal relationships. Remote access may mean you are never really on vacation, never really relax and recharge, so return in less than par shape. Easy access to information makes last minute work tempting. So much can be reviewed easily. However, this process is usually rushed, and rarely forms permanent memories like long-term studies. Therefore, technology in general can be good, but there are some technologies, or at least the ways in which we use them, that do not save you time and make you more productive.

Now, some ideas that payoff
One time saving idea that pays is gathering your tax information as it comes, saving you from hunting for it last minute. Also, saving each year’s information in an organized manner will save time if ever questions arise or, worse, you have an audit to counter. Finally, if you let your tax preparer know about any changes during the year, you have a chance to react and adjust your tax planning, rather than being told what you should have done when it is too.

The same holds true for evaluating any other financial change. Address it at the time, and save the documentation. For example, when you get a new document, you can now scan and save files on your computer (but be sure to have backups). This way, your information is more easily retrieved and searchable, so you can find the correct item quickly.

Investing: This is an area where too much attention is not the best use of your time but also risks making investment errors. Please see our comments at Faults of the individual investor…. Too much attention can lead you to override your long-term plan so spend the time on other matters. Your portfolio will be better off.

If you create or update your estate plan, be sure to change your beneficiary designations right away. You may even choose to fund trusts you have created, saving time for your executor (or the attorney she hires). See Estate planning overview…

If you have suggestions, or questions, let us know.

Finance Health Day (you own financial planning focus)

Taking a financial health day (like a mental health day, but for your finances)

A recent New York Times article spoke of taking a day that used to be “a mental health day” to work on financial planning matters, or a “financial health day”

With work and other matters demanding attention, many financial matters get put off. One that the author singled out was estate planning – one I often see people put off.

The list he created, as paraphrased and augmented by me, included:

1. Cash back credit cards – switching to or using mileage on existing cards

2. Insurance riders – updating or adding new items for coverage, which may entail appraisals

3. Phone service review – seeing if you have the best phone set up at home (bundling phone, internet and cable to save for example or even dropping the phone for your cell phone)

4. Cell phone service review – seeing if you have the best plan for your usage

5. Nanny tax service setup – setting up payroll for any household employees. The services are inexpensive and save you time.

6. Establishing an estate plan – putting in place a will

7. Insurance benefits – applying for reimbursements

8. In case of emergencies lists – this list tells people were all crucial papers and other items are stored (I have a list on my computer as well as in my safe deposit box)

9. Auto pilot charitable giving – setting up an automatic deduction from a checking account (or doing United Way via payroll)

10. Shopping spree – using the balances on gift cards or, as noted above, using your mileage. The balances do not earn you interest so might as well buy something, as a reward for all the work done on the other items.

These are obviously all worthwhile endeavors. Some take more than one day, such as getting appraisals or executing and estate plan.

I would add to the list the following items:

11. Updating the estate plan you have for changes you want to make in selected fiduciaries or changes in tax laws

12. Checking asset ownership and beneficiary designations for your estate plan so that the plan works as you intend

13. Putting assets in your revocable trusts to avoid probate (this is more important in sates other than Massachusetts)

14. Making sure you have proper liability insurance and an umbrella policy and replacement cost on your home

15. Using your flex plan before year end

16. Tax planning – one we always check with our clients – so that changes during the year are covered by changes in estimates or AMT strategies

17. Cash planning to be sure you have funds for the big purchases….. like cars, with now being possibly a good time to buy

18. Education funding – using 529 plans and any available tax strategies

19. Homestead filing, to protect the equity in your home

20. Reviewing your disability insurance to see if you can add to it

As you know from our work, we can help with many of these items so let me know if you or any of your friends and associates want to improve your Financial Health ….

Let us know if you have questions or comments. Thanks,

Steven