TedCo Software Financial Matters Blog

Make use of the good weather to go take a walk. Your cost for health insurance will be increasingly tied to your overall health. One way to control these costs is by going to a higher deductible. If you are healthy your odds of winning the high deductible game are much higher. Start now working on your health, exercising, and improving your diet. When open enrollment time rolls around you will be ready to make some changes in your health insurance costs. While you are sweating off the pounds at the local gym take some reading material with you. Particularly your employer’s benefits manual. You will learn some important things like: how does the 401k matching work, what will your pension plan really pay, what sort of life insurance and disability protection you can get, and maybe how to cash in unused vacation time.

I regularly ask my planning clients to bring in their benefit information. These benefits can be an important part of your planning. Many people with pensions know they have one, but have no idea what it will pay. While life insurance payouts are fairly straightforward (death = pay, not dead = not pay), disability can be confusing. A plan that pays 70% of your prior year’s wages may sound good, but if the definition of disability is “loss of the use of all limbs” it may never pay you a dime. That is an exaggeration (I’ve never seen that sort of definition of disability), but you can see how this detail will help you understand what exactly you’re getting, and how to get the most from that benefits package.

If it all seems a bit daunting you should contact your benefits department, or consider a Certified Financial Planner who will help you better understand your options and guide you through the process.

Jim Heitman, CFP®, is a writer, speaker, and Certified Financial Planning practitioner in Southern California.

Have you ordered your free credit reports yet? The three big credit reporting agencies (TransUnion, Experian, and Equifax) will provide you one free credit report every year. You can order the reports through www.annualcreditreport.com. Consider ordering one report now, then one from another company in four months, and the last company four months after that. That way you can check on your credit report regularly throughout the year for no cost. It is not as effective as a regular credit monitoring service, but it is much less expensive. Also, if you need to make a correction it gives enough time between checks to see those corrections made.

Credit is a tool, a bit like fire. It is really useful, but if it gets out of control it can really hurt you. In addition to checking your report for errors, use the reports to take a look at how you use credit. Are you really using it in a way that helps you? This is more than how you use credit cards. What are you paying interest on and for? Some things just about require borrowing, like a home purchase. Most things don’t, though. It can be hard to avoid borrowing for a big purchase like a car. At a minimum you should have a plan for getting out from that sort of debt as soon as you reasonably can.  An excellent tool for figuring how fast you can pay a debt off early is LoanSpread Loan Calculator.  With LoanSpread, you can enter your loan information (loan amount, number of payments, rate, etc.), select the payment in the grid, and click the Amortize button on the toolbar to see your loan’s amortization schedule.  What’s really useful about the Amortization Schedule in LoanSpread is you can add “prepayments” to the schedule (prepayments are additional payments or “overpayments” you make toward the principal of your loan – typically added to your normal loan payment).  Once you have added your prepayments you can scroll down through the schedule to see how much sooner your loan will be paid off.  For example, if you were to make prepayments (or “overpayments”) of $50 a month on the loan pictured here, the loan would be paid off six and a half months early at a savings of about $47,000.  Plug in different prepayments to see what kind of results you can get for various prepayment amounts at various points in the loan’s life.  You can download and try LoanSpread free by clicking here.

Paying interest for consumables like meals and vacations is just a flat bad idea (there may be exceptions to that rule, but they are exceptional exceptions).  Learn to use and respect credit and it will be a help. Abuse it and you will pay a higher price than just interest.  

Jim Heitman, CFP®, is a writer, speaker, and Certified Financial Planning practitioner in Southern California.

(Editor’s note: Jim’s “Mid-Year Planning” series will continue next week.  Today’s post was published today due to it’s timeliness.)

I have started this post three times, and each time found it outdated by the time I completed it. The tragic loss of life in the Athenian riots was particularly troubling.

Why is this happening, what does it mean, and what could it mean to me and you?

The toughest part of writing about an event like this is that there is little in the way of historical precedent to use as a guide. The markets hate uncertainty more than they hate bad news. That’s why you see such dramatic moves in the markets; nobody really knows what will happen next.

Greece is in trouble. The government of Greece is much more involved in the day-to-day financing of their citizen’s lifestyle than you see here in the states. Unfortunately, the government has been borrowing to make these expenditures for some time now and they simply can’t make the payments on the debt anymore. The government cutting back on these services while raising taxes sounds painful to most normal folks. In the old days a nation facing this problem would just print more money to pay back the loans. Sure, it would lead to hyper-inflation within the country, but that would resolve without hurting too much (except for the citizens of that country). Greece can’t do that. When they joined the European Union they gave up the option to devalue their own currency. Some sort of default is in the cards.

So what sort of “bad stuff” could happen? If the IMF and the other EU nations step up for a bailout they will postpone the eventual default, maybe long enough for austerity measures to begin to turn the situation around. If it happens sooner it will likely spread to other nations in similar but less severe situations (Spain & Portugal, in particular).

The best case scenario is that the problems are contained within Greece, who will suffer through a multi-year depression.

How will this impact you and me? A depression in Greece will have very little impact, and our economy will keep percolating along. A depression in Greece, Spain, Portugal, Italy, and Ireland, along with recessions in Germany, France, Japan, and the UK, would tip us into a recession. That would be unpleasant, but survivable. On the plus side, the drop in demand for oil combined with the increased demand for the dollar that would accompany the end of the Euro will likely push gas prices down dramatically. See, there’s always an upside. It will be cheaper to drive to the job you won’t have.

Nobody really knows what the result of this debacle will be. The one truth is that “This too shall pass.” Soon enough the world will find something else to panic about. Just stick to the basics and hold on.

Jim Heitman, CFP®, is a writer, speaker, and Certified Financial Planning practitioner in Southern California.

Now that you have a better handle on your taxes for next year, take a look at line 22 “Total Income” on your Form 1040 (or the equivalent line on the “A” or “EZ”).  Yep, you really made that much last year.  Where did it all go?  Right now is a great time to start looking at how you spend your hard earned money.  You should have a solid three or four months of data for 2010.  Break your spending down into broad categories and look at the spending pattern.  Where is your money going, and is it going where you want it to (if you are looking for a budget planner, try the TedCo Software’s DebtDasher software)?  Maintaining a positive cash flow is the most important thing you can do to insure a solid financial future; conversely, a consistently negative cash flow is a near guaranteed road to ruin.  This may sound like a flash of the obvious, but nearly a third of our fellow Americans are running on a deficit.  The government can get away with it for a very long time, but we working (and unemployed) stiffs aren’t so lucky. 

Learning to stay on a budget is hard, but it is a needed step in the road to financial success.  Watching out for the little things means a lot.  We have all heard the stories about the ultimate cost of that Tall Latte (or Venti in my case).  As much as the latte habit, fast-food lunches, and fancy cable packages can hurt, they aren’t the real budget busters.  The big tickets are where most folks’ big problems really begin.  Over-spending on autos and homes, with their attendant big monthly payments, puts most people behind in the perpetual game of “get ahead”.  Try to make that car last a few more years and save up for the next (used) car.  Let somebody else spend all that money on a quickly depreciating new car.  While we are looking at this; do you really need a room for every man, woman, child, and pet in the family?  Don’t think just in terms of how much you can afford right now, but what you can afford if you lose one (or two) incomes.  How long will you be able to maintain payments if an income disaster strikes? 

What if you need all that room so you have some place to store your boat, sea-doos, motorcycles, rv, and trailers?  Well, you may need more help then just budgeting.  However, you’ll make me feel better about my venti white chocolate mocha habit.

Jim Heitman, CFP®, is a writer, speaker, and Certified Financial Planning practitioner in Southern California.

The weather is turning warmer here in sunny SoCal, and I hope you find the weather more to your liking where you are right now.  The sunny days, mild temps, and budding flowers inspire most of us to put on long neglected shorts and get outside for a bit (OK, where I live the shorts have been put away for about six weeks, but you get the point).  Before you do that, take a few minutes and start to think about your mid-year financial planning.  I think there are eight things you should look at, but we are just going to touch on one this time around: taxes.  I figure you have all those tax documents handy right now, so let’s take another look at them before you file them away for your grandchildren to throw away after you’ve died.

Did you get a sizable refund?  Yes?  Alright, there are two things to work on.  The first is what to do with the windfall.  Do you have a goal from last year that is not on schedule?  This may be the funds you need to get it back on track.  Think about paying down debt, adding to savings, or investing in something that will provide real returns (ie. Replacing a failing, expensive appliance with something that will provide a real return in reduced costs).  Second, figure out why you over-withheld.  Was there a one-time item or event that provided a big break?  If so, don’t assume it will happen again.  If you are just having too much taken out of your paycheck then change your withholding.  Just Say No to giving interest free loans to the government.

Are you on the other side of the tax return gambit and had to pay a penalty because you under-withheld?  Bummer!  Like step two from the prior paragraph, figure out why.  If there was truly some sort of one-time event (unlikely) then take steps to mitigate the problem.  If it is an issue of not paying enough in your quarterlies or payroll withholding then, (sorry) start paying more and making lifestyle adjustments to live within your new means.

If the math in any of the above makes you cross-eyed, consider engaging a certified tax professional like an Enrolled Agent (EAs can handle most normal individual situations) a CPA or (for the really complex problems) a tax attorney.

Jim Heitman, CFP®, is a writer, speaker, and Certified Financial Planning practitioner in Southern California.

One thing that concerns most people who live and work on Main Street is that Wall Street’s greed is sucking money out of small towns across America. After being bailed out by those who live on Main Street, Big Banks continue to flout the rules of fair play.

Just last week The Washington Post reported “AIG executives’ promises to return bonuses has been largely unfulfilled“. Today, one reads “GMAC Said to Discuss U.S. Aid Package of $3 Billion or More“, which would be a third bail out of GMAC, Inc. And just last week, reports surfaced that Citibank was able to buy it’s way out of TARP because the US Government granted it a $38 billion tax benefit, “The Mother of All Tax Breaks“!

If you have money in one of Wall Street’s banks, it’s clearly time to rethink where you keep it.

“Move Your Money: A New Year’s Resolution” describes a movement afoot in this country for people who live on Main Street to move their money home. Nearly every community in this country has one or more local, community banks or credit unions. Unlike Wall Street banks, community banks and credit unions tend to be very involved in their local communities. They make loans based on conservative lending standards and they tend to keep money in their community.

Learn more about this movement by reading “Move Your Money: A New Year’s Resolution” or by visiting the Move Your Money web site at: http://moveyourmoney.info/ The Move Your Money site has a video and a quick way to find financially sound community banks located near you.

If enough people do this, it may be the one thing that simultaneously helps your local community, sends a message to Wall Street and gets the attention of the U.S. Government.

The financial world has spun with an odd wobble recently. Not so long ago, the manic mantra was, “Spend, spend, spend!” Per capita savings was negative. Americans were spending more than they were earning. Then, as all things do, it ended.

Now the new mantra is, “Save, save, save!”

So much so, lately, that some economists are predicting the economy may suffer because people are saving and not spending! (That may be accurate — who can predict the future — but it’s crazy thinking. It’s no one’s job to go into personal debt to save the national economy.)

This post about saving money focuses on the HOW. It’s about ways you can save money. Saving is the new black.

I’ve collected links to web sites and blogs that, when added together, provide more than 383 ways you can save money.

So here you go — 383 ways you can save money:

• 7 radical ways to save money
• 30 Easy Ways to Save Money (and No, you are not doing them all!)
• 66 Ways to Save Money
• Little Steps: 100 Great Tips For Saving Money For Those Just Getting Started
• Twenty-Five Ways to Save More Each Month
• How to Save Money on Gas – 29 Tips
• 118 Ways to Save Money in College
• 8 Simple Ways to Save Money & Help Stop Poverty

If you want to get out of debt, there is one law you must break. It is Parkinson’s Second Law: “Expenditure rises to meet income.”

Cyril Northcote Parkinson’s First Law was the first sentence of a humorous essay published in The Economist in 1955. Parkinson later devised his second law, “Expenditure rises to meet income,” and detailed it in his book, “The Law and the Profits”, published in 1960.

The law you must break to get out of debt (that expenditures rise to meet income) seems obvious. While sage advice about a pay raise is that one should act as if it never happened and save the monthly increase in income, it rarely happens. Usually, when someone gets a pay raise, they immediately begin spending more.

Fortunately, Parkinson’s Second Law isn’t written in stone. It’s not a universal law or a moral law. It’s merely a humorous observation. In fact, it’s a “law” that is made to be broken.

How does one break Parkinson’s Law? It’s best done as a combination of these three truisms:

• Reduce your expenditures
• Increase your income
• Save the difference

Difficult, yes. But certainly a law worth breaking!

The news is horrid these days. 11% of home owners are in default or foreclosure. Unemployment is rushing to 10%. Can you do anything about it?

Watching this economy play out reminds me of the way many of us in Louisiana watched the news as Katrina approached the Gulf coast. We were fascinated by the potential devastation. We knew the score and what was at stake. Many were glued to the TV because we had family and friends in New Orleans. After Katrina made landfall, people across the country watched the ruckus Katrina made of Louisiana and shook their heads in disbelief.

But for all the time spent focusing on the bad news of Hurricane Katrina, did watching the news do anything about it? No. Did worrying save anyone? No.

The only way people saved themselves and others was to accept that a killer storm was coming, make plans to take care of themselves, their families, friends and neighbors, and implement their plans.

In a nutshell, the equation is this: K + P + A = S.

Knowledge + Plan + Action = Survival.

The current economic environment does remind me of Katrina approaching the Gulf coast. You know it’s going to be bad. Based on the experiences of many, I believe if you have the ability to see potential consequences, make plans to accommodate them, and implement your plan, you’ll be a survivor.

Many lost their homes to Katrina, but they survived. Many moved away from their homes, but they survived. If you watched the U.S. Coast Guard’s helicopter crews pluck people from rooftops, you know many people gladly accepted help and they survived.

An economic storm is approaching. Can you do anything about it?

You can’t stop it. It’s bigger than all of us, but you can certainly prepare.

1. I’ve quit watching the doom and gloom news. You know it’s going to be bad. There’s not reason to depress yourself by immersing yourself in every talking head’s dark tale of the economy.

2. Evaluate your current situation. Ask the basic question, “Am I prepared for this storm?” Do you know what you would do if you were to lose your job?

3. If you are not prepared for the storm, prepare yourself. Start now. As soon as possible, set aside some money and begin an emergency fund. If you haven’t considered it, think about what you will need to do if you lost your job. (For example, as soon as it happens, ask your employer, supervisor, and co-workers for letters of reference. Leave with a good attitude instead of burning bridges. Go ahead and clean up your resume while you’re thinking about it. Keep building good connections in your business network.)

4. Keep your wits about you. Bad news stirs strong emotions. If you get lost in all of the flood of emotions like worry, fear, panic, etc. you cannot make good decisions. Survivors think and act.

5. Be practical and prioritize: take care of the basics you and your family need like shelter, food and utilities. For example, if you can’t afford both, lose a 4-wheeler before you lose your lights. Give up your boat before you quit eating. Know what’s important and focus on maintaining that.

You almost can’t help but hear bad news and the comparisons to the Great Depression. Here’s what I know. It’s true that fortunes were lost during the Great Depression. It’s also true that fortunes were made. Living through it changed an American generation. People survived the Great Depression.

Know what’s going on, create a plan to handle it, implement the plan and survive.

Free Pay Down Debt or Invest Calculator

Maybe you received a tax refund. Perhaps it was a gift from family. However it arrived, you received a windfall! Now what?

Is it better to pay off (or pay down) debt? Or should you invest the money? Or even more basic, should you tuck it away into an emergency fund?

Anytime you have extra income, you must ask the important question, “What’s the best thing to do with this money?”

First, if you do not have an emergency fund consider saving the extra money. The current economic environment surely dictates that you have an emergency fund if possible.

Second, (only after you have an emergency fund) consider whether to pay off debt or invest the windfall.

Wheatworks Software has released a Free Pay Down Debt or Invest Calculator which shows you the impact of your decision over a ten year period. This Windows®-based freeware may be downloaded from http://wheatworks.com/pdisetup.exe.

Remember, you should always consult your own financial advisor before making important financial decisions.