TedCo Software Financial Matters Blog

The May job numbers seemed good, but were really bad news. The recovery had been producing steady real job growth, and on the surface the May numbers looked great with total non-farm employment up 430,000. The unfortunate truth was that the vast majority of those new jobs were census workers whose jobs are to last only a short time. Hiring by private employers was quite small (+41,000) and few real jobs were created. Unemployment dropped to 9.7%, but most of that improvement was due to census hiring. The market responded to the ugly truth behind the happy numbers negatively, as was expected.

Last week June’s numbers were released. It was an unpleasant decline of 125,000 non-farm payrolls reported. However, this includes the layoff of 225,000 census workers. Private sector payrolls increased to 83,000, more than double last month. This is really good news, though the private sector needs to add more than 100,000 jobs a month just to keep up with population growth. Also, the unemployment rate dropped to 9.5%, though this is not particularly good news as the drop is mostly a result of workers becoming discouraged and giving up. The market responded negatively to the good news.

The market is not a great indicator in the short term. Sometimes the market treats bad news as neutral and good news as good news. Not right now though. Right now the market treats good news as neutral and bad news as bad. Don’t expect a nice uptick in stocks until the market shakes the blues.

Let’s get back to the unemployment rate. This number is an important indicator of mood and economic activity, but it is a bit deceptive. The rate is a measure of the percentage of people who have or want a job and don’t have a one. A person is said to want a job if they have actively looked for work in the prior four weeks. This is supposed to weed out those people who do not want to return to the workforce. In an extended downturn (or slow recovery) a number of workers become discouraged and quite looking. The drop in the unemployment rate is more a result of a reduction in those who are actively seeking work rather than a real increase in total employment.

The headlines will cover these signs of weakness, trumpeting the poor showing as compared to the average post-war recovery. However, this slow recovery, particularly in employment, was what we saw for the last two recoveries (1991 and 2002). We may need to adjust our expectations; the jobless recovery may be the new normal in the information age. It is neither good nor bad, it is just the way it is. Unless you need a job, then it is just bad.

Jim Heitman, CFP®, is a writer, speaker, Certified Financial Planning practitioner in Southern California, and the founder of Compass Financial Planning – a fee-only planning and money management firm.

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.

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.

The market drops and everybody wants to know why.  The popular press is carrying on about the government’s belated, small, and weak fraud suit against Goldman, Sachs (The real reason the market dropped? There were more sellers than buyers).  The market has been steadily advancing and is looking for a reason to take a break.  The Goldman suit provided the excuse; if it hadn’t that then there would have been another explanation for the drop: the volcano that ate the airline industry would have been faulted, or something else.  (By the way, that volcano will cause some real economic damage, though not likely severe, except in Iceland . Those poor folks in Iceland really didn’t need any more bad news.)

Though it is clear to see that Goldman is guilty of some wrongdoing, don’t get excited about justice finally coming to “the Wall Street Fat Cats that Did This to Us”.  On first blush the government’s case looks rather weak. There is only one individual named; a mid-level trader (age 29 years at the time) that bragged about how fab he was even though he did not understand the implications of what was happening.  Unless the government has or finds more evidence this thing will pass with little impact on the markets, and no significant punishments being doled out (unless you’re that poor kid with the big mouth).

Do not place bets on the beginning of the next great bear based on this, you’ll just get bit.  This market is lined up to take a breather before it continues on uphill.  My thinking is that we are a year into an extended bull (2-3 years).  As a reminder, a bull market is one that is trending positive, a bear market trends down.

A fair piece of the justice due those who “Did This to Us” has already been dealt out.  Who got punished?  We did, and most of us participated in creating this mess.  We over-spent, over-borrowed, over-rewarded excess risk, and generally applauded when it was all good.  It was quite a party, now we are recovering from the hang-over.  There are few innocents.  Oddly, one of the few innocents are folks in nations whose governments bought our poison debt derivatives like, well, like Iceland.

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

While I’m not certain the political slant of the article is valid (you’ll need to decide for yourself), Forbes.com has an interesting report which ranks the financial condition of the 50 states. The article is titled, “Political Litmus Test: Bluest States Spilling the Most Red Ink“. The subtitle is “Powerful unions, big spending put Democratic states in deepest fiscal holes.”

The data comparing the states is presented well. However, the coorelation between political slant of a state and its financial health may not be a strong as the author suggests. Read the article, find your state in the data table, and compare what you read with your own experience of your state’s economy. That Democratic tendencies push states into fiscal difficulties may or may not be proved, but the argument is certainly interesting.

Link: http://www.forbes.com/2010/02/25/democratic-states-bad-financial-shape-personal-finance-blue.html

Rick Wheat
MoneyToys.com

In “Fannie, Freddie Housing Goals May Exclude Subprime“, the article begins with what I think must be a common myth about the relationship between lower-income and subprime. The article states, “Fannie Mae and Freddie Mac would no longer be able to rely on subprime mortgages to meet their government-mandated goals for helping lower-income Americans obtain home loans”.

The assumption presented here is that people with lower incomes must be subprime. This is false.

While I can’t pretend to understand the eel-knot of Fannie Mae, Freddie Mac and the U.S. government’s regulatory mandates, I do know one thing: Credit-worthiness is about one’s payment history.

In fact, there are a large number of wealthy Americans with sorry credit scores paying high interest rates on mortgages because of their poor credit ratings. The opposite is also true. There are a lot of lower-income Americans who have excellent credit.

Don’t believe the myth. And if you fall in the lower-income bracket with excellent credit, don’t let the media weigh you down with false assumptions about your integrity.

“Lower-income” does not equal subprime.

Rick Wheat
MoneyToys.com

It’s been quiet on the Wheatworks blog for the past month due to a lot of changes that have been taking place behind the scenes. Wheatworks.com and the Windows financial software products offered on the site have changed ownership. TedCo Software purchased the Wheatworks.com site from Rick Wheat (the owner of Wheatworks Software, LLC) in February. In addition to the Wheatworks.com site and its blog, TedCo Software also is the new owner of the products and sites for:

• DebtDasher™ Personal Debt Management Software
• Discounted Cash Flow Analysis Calculator
• Home Buyers Calculator Suite
• Home Selling Calculator
• LoanSpread™ Loan Calculator
• Real Estate Calculator Suite
• Future Value of Savings Calculator

What this means for the Wheatworks Financial Matters Blog

The Financial Matters blog will continue as the TedCo Software Financial Matters Blog. Rick Wheat will continue to provide articles for the blog as he has in the past. A new post from Rick will be up later this week. In addition, we plan to feature posts from some new authors in the near future. Rick continues to market his Money Toys line of online financial calculators at MoneyToys.com.

Who is TedCo Software?

TedCo Software was founded by Dan Hite. Dan started working as a corporate software developer in 1995 and started his first software business, Auction Sentry Software, in 2001 developing and marketing the popular eBay user utility called Auction Sentry. The software was very successful and in 2007 was awarded the People’s Choice Award at the Software Industry Conference. Dan sold the Auction Sentry Software business at the end of 2007 to move on to other projects. At the start of 2008 he founded TedCo Software. In addition to the Wheatworks.com line of financial calculators TedCo Software’s products also include:

• SpellQuizzer™ – Spelling Software for mastering spelling words fast!
• CD and DVD Jewel Case and Label Creator™ – Design and print all of your CD, DVD, BlueRay and Jewel Case labels right from Microsoft Word®

Dan Hite
TedCo Software

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.