Resolutions
I read a blog from a fitness guru that the first 12 days of a new year define how that year will play out. Maybe that’s true for your fitness and nutrition goals (and now that January is half over, how’s that going?!) Regardless of your resolutions for the year, procrastination is easy. I think the key to financial goals is like anything, to make them easy and attainable. Select one from list and once that’s tackled, select another.
Make 2012 the year you:
- Become debt free
- Start an emergency fund/savings account
- Save more towards retirement: set up a Roth IRA or contribute more into your 401k
- Not only look at life insurance but actually purchase it
- Establish a will or trust and select powers of attorney
Feeling Generous?
Now is a good time to reflect on the blessings that 2011 brought, and to be mindful of those that are not as fortunate. There are so many causes here inWest Michigandedicated to helping keep people warm and fed this time of year. Most gifts to churches and charities are at least partly tax deductible, and those gifts can include cash, stock, or physical donations. You can gift up to $13,000 to as many people as you wish this year without paying federal or gift tax, keeping in mind your lifetime limit. Strategize with your tax and estate planner on ways to minimize your estate.
Need a gift idea? Why not fund a 529 college savings plan for your grandkids? Or purchase a juvenile life insurance policy? Starting an asset for the young ones you love can give them a great jump start as adults.
Whatever joys and challenges that came with 2011 and whatever is yet to come in 2012, make a resolution to have your financial house on track. Put in a little effort and you may be surprised at the results.
To you and yours, I wish you a happy holiday seasons and many blessings in 2012.
The Year-End Numbers Game
Today's topic is some tips to minimize your income taxes due in the spring. Generally speaking, you have until April 15th to contribute to your IRAs for 2011. But by completing this before year end, you may be eligible for some tax savings and credits. Also look at increasing your 401k and 403b contributions as they will decrease your taxable income.
Do you have securities that are less than what your original investment was? It’s possible you can harvest those tax losses and offset some income.
What about deductions? If you purchased a new home, you’ll have mortgage interest. Or if you are newly into the workforce after years of college, student loan interest or expenses related to job searches can be deducted. Don’t forget about energy efficient upgrades you did to your home or home improvements if you’ve got an office in the home. And keep those health related receipts if you’ve had a year filled with unexpected health costs and challenges.
Meet with your tax advisor before the year ends to compile some estimates and determine what your income tax bracket will be and any year end moves you can do to save.
How eventful was 2011?
In some ways, I had an eventful 2011. I said goodbye to my Grandma Ann but I also said hello to my nephew Owen. What changed for you?
- Did you get a new job or leave an old one?
- Did you get married or engaged? Or become a widow(er) or get divorced?
- Did you start a family?
- Did you move and buy or sell a house?
- Did you start a business or sell a previously owned one?
- Did health change significantly for you or someone you love?
All these life events merit a review of your plan. If you fall into one of these categories, you should talk to your financial, insurance, tax, and estate professionals to make sure your ducks are in a row.
Your Year-End Financial Check-up
The next couple weeks will highlight some items you might want to do before saying goodbye to 2011. They may seem minor, but little year end moves may lead to significant improvements down the road. So, before you pop open the champagne to ring in 2012, connect with your advisors before the new year starts. Did you have a significant birthday this year? Remember if you turned 70 ½ that you need to start withdrawing money from your IRA accounts - aka RMDs (required minimum distributions). If you turned 50, you can start saving more into your retirement accounts. Medicare starts at age 65 and most are eligible for social security at 62. In the same light, are you having these significant bdays in 2012? Get with your advisors early to start planning so you can maximize benefits.
What's a POA?
True or False? If your spouse is in a coma, you can make his/her financial and medical decisions just because you are married. False. This is a misconception with not just newlyweds. A Power of Attorney is a legal document that grants you the legal capacity to make those decisions on behalf of your spouse. You can find power of attorney documents online or meet with an estate planning attorney and have it drafted for you. Many attorneys will offer you an initial free consultation and give you more guidance on what the power of attorney is, does, and how it works.
You should also have a will created. A will makes sure your wishes on who gets what are carried out after you pass away. If you don’t have a plan, be sure the state does. The courts are happy to host a fight amongst your remaining family members to figure out who gets what – more officially referred to as probate. You may think your family will be civil or you don’t have much for people to fight over, but I’ve watched it break too many families apart because the person that died didn’t have a plan.
Regardless if you are young or old, newlywed or single, you need to get a will and a power of attorney for healthcare and finance established. It makes it much easier to make decisions on behalf of your spouse. And as you become more established, have children, start a business, or accumulate assets, you may have to do more planning than just this down the road. Estate planning is just another way to keep you in control.
Tying the finances
My husband and I were in our mid to late twenties when we got married. That meant we each had our own car insurance company, bank, and habits of spending money. Keeping your own doctors is one thing, but keeping your finances separate once you get married is something else entirely. Here's some tips to get your finances on the right track.
- Merge your bank accounts or at minimum, add each other as co-signer. The bank doesn’t care if you are now married, you need to add your spouse if you want them to be able to access your accounts.
- Select one insurance company. You will lose out on multi-line discounts by keeping your car insurance separate, especially if you purchase a house down the road. Also, don’t forget the renter’s insurance or condo insurance.
- If you have benefits at work, compare both plans and see which provides the better health insurance coverage. You should have 30-60 days after you get married to make the switch.
- Changing your name? It’s not a legal requirement to do so but if that’s what you have chosen, start with the Social Security office first. Also, you will probably need to change/update your beneficiaries on your investment accounts and life insurance as well.
- Select a financial professional to help you with budgeting, savings, and investment selections. Consider the planner’s experience, pay structure, ethics and fiduciary standards, and designations. A CFP® or CERTIFIED FINANCIAL PLANNER ™ is licensed, regulated, and takes mandatory classes on financial planning topics. Run a background check on them, to verify they are who they say they are.
- Get a will and a POA – that’s next week’s topic
Budgeting
Budgeting is an easy thing to procrastinate. It’s not a fun process, but after you are done, you usually don’t need to adjust it very often. My system is the 70-10-10-10 rule for your paycheck. 10% - into a short term savings account. Life happens and sometimes you need to be able to get at money quickly. Try to have 3-6 months worth of income in this account as a target over time. That way if a car breaks down, the roof leaks, or you lose your job, you’ll have access to cash.
10% - into a long term savings account. If you are like most 20, 30, even 40 somethings, you employer isn’t going to have a pension or defined benefit plan for you. You need to start saving for your retirement. By starting early, you have the advantage of time on your side.
**But what if you have credit card debt or a car payment or student loans you are trying to pay off? What if you are trying to save for a down payment on a house or other large purchase? This is where working with a financial planner comes in, to help you figure out from which savings account to reallocate your paycheck into.
10% - give. Whether it is to your church or charity, a generous heart is rewarded. John Wesley, an English Evangelist, said to “make all you can, save all you can, give all you can.”
70% - live on the rest. No matter how your income fluctuates, you are in the habit of living within your means.
Now for some, this is an unrealistic picture. I know people who live paycheck to paycheck and some who spend more than they make because their lifestyles are too high. Put pen to paper and see where you money is going. You may be surprised to find how easy it is to adjust things and gain control of your finances with a little effort.
If you need a budget worksheet, email me at kbolker@sigmarep.com and I will provide one for you!
For Richer, For Poorer
Five summers ago, I was planning my own wedding, finalizing details, coordinating schedules, taking care of guests, and everything else in between. Planning your wedding day is a lot of work, but what about planning for your marriage? Problems can stem from disagreements with money and finances. Tying the finances is an important part in planning for your marriage. So where do you start? My best advice: TALK. Chances are that how your parents look at money and the habits they have will be similar to yours. Are you a saver (like me) or a spender (like my husband)? Talk about what’s important to you and the goals you have. A nice house? Vacations (domestic or abroad)? What about with kids – private or public school? Do you view debt as his debt or her debt or our debt?
I’m not going to tell you there’s a right or a wrong way to approach money in a marriage. You just need to communicate with each other and make sure you have a system that works for you. Some couples use budgets, some use an envelope system, some don’t use anything at all.
Next week we’ll look at my budget system and in the following weeks I’ll provide some tips that every newlywed couple should look at.