Doing more chores than your spouse? (You must be the mathematician!)

mowing grass

photo credit to: “Sharon & Nikki McCutcheon”

For most couples, dividing up the chores is one of the first items of business when they start a life together. Taking out the trash, doing the laundry, cutting the grass, scrubbing the toilets. We all know the list. Paying the bills, which is on there too, is typically handed off to the partner who is either best at math or has traditionally been the most responsible with money. What most couples don’t realize is this: the mathematician in the house is getting a pretty raw deal.

Sure, the chore of “paying the bills” is pretty straightforward. In the beginning, finances are simple. The most important tasks are budgeting, paying every bill on time, and managing monthly cash flow. Not so bad. The chore is done in the time it takes to cut the grass. But as time moves on, finances get more complex. Suddenly “paying the bills” includes finding the best rate on a home mortgage and figuring out how much to contribute to your 401(k) and 529 plans. Deciphering complex benefits packages and navigating corporate buyouts are added to the list of responsibilities. Juggling FSAs, HSAs, and insurance claims fall into this category too, as does trying to pick stocks, diversify investments, stay educated on the market, and think about tax liabilities. It can sure make scrubbing the toilets seem a lot more attractive than it did in the early days.

Lisa and Matt called my office a few weeks ago, and it wasn’t a happy discussion. They’d hit a breaking point, and they needed help. Lisa had been their family “CFO,” and she was proud of how she’d handled the finances over the years. But two things had changed. First, Lisa felt she could no longer do the job well; they were trying to buy a second home, and she felt overwhelmed by the decisions that needed to be made. Second, when they initially dove into the financing process, they got some unhappy surprises. They were in much more debt than they’d realized, and their FICO scores had dropped below 700. Matt accused Lisa of mismanaging their money. Lisa didn’t know what she could have done differently. Things were a mess.

Lisa and Matt’s story is all too common. No matter how hard they’re willing to try, most people don’t have the training or time necessary to complete the complex financial analysis required to make optimal financial decisions. In worst-case scenarios, a serious error has been uncovered: taxes are misfiled, assets are lost, or there’s been hidden overspending by one spouse or the other. That’s when I become as much a mediator as a financial advisor. And I hate to see it, because today’s troubles could have been avoided years ago—back when the chores were being divided, and “paying the bills” and “cutting the grass” were somehow seen as equivalent. The fact is, the grass never gets more complex, but your family finances are a dynamic, moving puzzle that requires both time and expertise.

Whether I’m talking to newlyweds just starting out, or older couples who have hit a treacherous fork in the road, here’s what I recommend:

1. Take on joint responsibility for your finances—NOW. As partners, you should             share equal responsibility for all aspects of your money. Sure, one person may be               dealing with the basic bill paying, but you should each consider it your fiduciary                   responsibility to your relationship to make mutual decisions about the budget and how       your money is being spent. No one wants to have to ask permission to make a major         purchase—or be criticized for financial decisions that were made when they were               simply doing the best they could.

2. Don’t wait until there’s a financial tragedy to get help. Inevitably, your finances           will get more complex and you’ll realize it’s time to start working with a professional. All       too often, it takes a misstep of some kind—a financial wake up call—to take this step,       and by then, there’s a mess to clean up. A good rule of thumb: if managing your money     is taking longer than it takes to cut the grass, it’s time to get some help. If, like Lisa and     Matt, you know it’s time for some real advice and guidance, be cautious who you turn       to. Co-workers, friends, and family may empathize, but they rarely have any formal             knowledge in finance. Google is…well…Google. And a salesperson (even one who             goes by the title of “advisor”) may be selling rather than solving. Find the right advisor for     you using these tips from the National Association of Personal Financial Planners               (NAPFA).

3. Know what you don’t know. Your math skills may be fantastic, but without                     formal training and experience in financial planning, you could very well find yourself in a     mess like Lisa and Matt 10 years from now. A professional advisor can help you get you     back on track financially—and keep you there over the long term. Here are just a few of     the questions you may want to ask an advisor in your first meeting:

 How do we balance saving for our children’s college education and saving for our

 Should we try to pay off our mortgage early, or is there a better way to leverage our

 How can we include our aging parents in our plan?

 What can we do to plan today for tax-effective asset distribution in retirement?

 Are we doing everything we can to keep taxes to a minimum and spread out our tax liability?

 Do we have enough and the right type of insurance—including life, disability, healthcare, etc.?

Of course, the challenges are different for everyone. For Matt and Lisa, it didn’t take us long to identify how they’d gotten where they were and what needed to be done to help rectify the situation. Next we created a plan that took the decision-making off Lisa’s chore list and made the finances a joint project. By working together as equal financial partners, they now have a clear path toward a more successful financial future and, hopefully, an easier road to their own “happily ever after.”

Ready to take the finances off your chore list? Contact me to schedule a time to meet. We can dive into your finances together and put a plan in place that works for you.

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The mighty dollar: The good, the bad, and the ugly

Rivas_blog_dollar

How did we get here? In 2008, at the height of the recession, the dollar was sitting at an historic low. And while we’re still fighting our way uphill in many areas of the economy, the dollar is surging higher by the minute. In 2014, the US Dollar Index (DXY) jumped 12.8%. And it doesn’t seem to be slowing down in 2015. Add that strength to oil prices that seem to be dropping at an equally impressive rate, and US consumers are feeling pretty heady about the economy. Sure, we can all get deals on anything imported from abroad, and you may have just logged off of AirBNB as you daydream about that long-awaited trip to Europe. But is a strong dollar all good news? Here’s a quick peek at the good, the bad, and the ugly about a high-flying dollar:

The good…

Everyone of us wants more money in our wallet, and we’ve getting that from lower gas prices for months. Now the stronger dollar is giving us even more by delivering some hefty buying power. Pretty much anything imported into the US is going to cost less than it did last year. This goes for everything from Japanese cars to Chinese electronics to German pharmaceuticals. In 2013, the US bought $2.33 Trillion worth of imported products—up 45.5% from 2009—so the overall “savings” is huge.

The bad…

While we’re busy paying less for imports, non-US consumers and businesses are busy paying more—a lot more—for US exports. This means foreign companies are buying fewer US goods and services (just take a look at the disappointing earnings reported from Caterpillar and Microsoft last week to see the real-world impact). This backlash can hit US production, which can then result in a second hit to manufacturing jobs. US companies with operations overseas are bound to see losses as well.

The ugly…

If the dollar climbs too high, the issues can go global. In the US, our exports can be outpriced by foreign bidders, and tourism hotspots at home may become less attractive (read affordable) travel destinations for visitors from Europe and Asia. Despite the strength of the dollar, the balance can start to shift against US companies, leading to a negative impact on corporate growth, earnings, and the stock market.

The upside.

Despite that doom and gloom, we’re actually in a strong position for the time being. And we can stay there with a little planning. From an investment perspective, the average retail portfolio faces 100% dollar exposure, so if things continue the way they’re going, it may be time to hedge that exposure to diversify risk. The same is true for commodities, which are hard-hit by a strong dollar. Foreign markets are a mixed bag: a stronger dollar means US exports are more expensive, which can cause an uptick in earnings for foreign companies. But the strong dollar also hints at a growing US economy, which would lead to strong growth domestically. By keeping an eye on the global balance, we can work to leverage each opportunity.

The best scenario is a dollar that is strong, but not too strong. And while we certainly have no control over that strength, there are controls at play to help maintain global balance. It’s likely that supply and demand will help even out the playing field. The important thing to remember is that there’s always a boogeyman out there taunting the market. In 2012, it was the fiscal cliff. In 2013, the Federal Taper. Last year, Russia and the Ukraine. This year (so far) it’s been the strength of the dollar and (as of Sunday) the Greek election. But over the long term, this boogeyman will also vanish, and life—and the slow, steady growth of the market—will go on.

From my perspective, the US is the strongest economy in the world—and the most transparent—which tilts the balance in our favor. So jump back on to AirBNB and see if there’s a great spot in Europe you’ve been dying to visit. Now may be the best time to pack your bags and take advantage of the strong dollar to get a little more of just about everything for your money.

Questions about how the strong dollar impacts your own financial outlook? Email me and we can schedule a time to dive into more detail. I’m here to help.

Stop the online marketing madness!

Even if online shopping isn’t really your thing, it’s the time of year when many people turn to the internet for some serious help from the new “North Pole.” The web is a great way to stay out of the mall, out of long lines, and happily shopping away in your slippers. Better yet, the presents you buy are delivered right to your door—if not straight down your chimney by Old St. Nick.

So yes, I’m all for online shopping. Except for one serious issue: the power of invasive marketing to get us to buy more—and spend more—than we should. In my opinion, intuitive, online marketing is kicking the asses of American consumers, and most people don’t even realize it.

Here’s why it matters: When it comes to managing your life savings, one of the biggest success factors is slowing your spending. Making conscious, conscientious decisions about every purchase you make can have a major impact on your finances, but keeping a lid on spending can be a challenge—especially when we’re constantly inundated with marketing that is designed to lead us away from those conscious, conscientious decisions.

The power of intuitive marketing

If you search Google for “best deal on tires”—and you actually need tires—those ads popping up on Facebook for the next week may very well lead you to a great deal at a local tire store. But what if you find yourself dreaming about a brand new red Corvette? You don’t need it, but if Santa was feeling extra generous, it may be right up there on your wish list. So you do a quick search just to feed your fantasy. And then, day after day, that beauty keeps showing up everywhere you look! Facebook. Google. Yahoo! (Paid advertising is, after all, what keeps most of the internet free. The ads are the price we pay, just like the ads on good old network television.)

The truth is, when you plugged “Corvette” into your browser, you fed much more than your fantasy. With just a few keystrokes, you handed out your dreams on a platter and fed the ubiquitous internet marketing machine. And it’s a killer.

Why? Because intuitive internet marketing really works. Recent studies show that “click throughs” aren’t the true indicator of success with online marketing campaigns. What seems to be working is the repeated image—much like roadside billboards. Suddenly, you just can’t stop thinking about that Corvette. You start to think you really need that new Corvette. Maybe it really is a priority. Or, just maybe, you’ve been clobbered by Chevy’s massive online marketing budget and its focus on behavioral targeting and online behavioral advertising (OBA).

Putting a lid on OBA

If you’ve never heard of it before, OBA is the technique used by online advertisers to create smarter, targeted, and highly personalized marketing campaigns based on their knowledge of how, where, and when to attract your attention. It’s what fuels the ads for the items you just “happened” to be thinking about (in other words, you typed the search word into a browser, included it in an email, or posted it on Facebook). While it’s become nearly impossible to outwit OBA completely, you can take a few simple steps to significantly reduce your trackability.

If you don’t want Facebook or other participating companies to collect or use information based on your activity on websites, devices, or apps for the purpose of showing you ads, you can opt out through the Digital Advertising Alliance. You can also opt out using your mobile device settings.

To stop most online advertisers from tracking your activity, see this article by Kim Komando (skip to page 2 to get straight to the ‘how to’ tips).

To stop tracking by advertisers on Google and Yahoo!, log into your Yahoo! or Gmail account and go to the Yahoo! Ad Interest Manager or Google’s Privacy Center. The “opt out buttons are on the front page of each site, along with a number of advanced options that let you decide which types of ads you would like to see, if any. 

For the marketing that does slip through the cracks, just remember to be conscious and conscientious about every purchase. We’re all going to make a few splurge purchases every now and then. For some of us, it may even be a red Corvette just in time for Christmas. But by reducing the flood of targeted online advertising and being more aware of marketing’s impact on our own behavior, we can all save a bundle in 2015 simply by limiting our spending to the things we really need and want.

Why ‘Tapering’?

Lately, the press has been beating their drums about the winding down of QE3 (Quantitative Easing 3) and the fancy name for the process is called ‘tapering’. The pundits insist inflation is soon to follow. After all of this money printing, certainly inflation is on the horizon, right?

How does QE3 affect the economy?

The Federal Reserve uses monetary policy to guide the economy. The Fed has two mandated goals:

1) Provide stability to the financial markets and

2) Control inflation.

It could be argued that when push comes to shove (and it often does) the Fed will temporarily disregard inflation if stability is in question. We are now nearing the end of that precise type of cycle. After the entire system came into question in 2007-2008, stability to the markets took center stage. In order to get markets to flow after this economic shock, the Fed took unprecedented measures. Covertly, they manipulated the players (Lehman, Merrill, Bank of America, FNMA, GSA etc) while overtly they supported financial flows (increased FDIC insurance, flooded the markets with cash (bought debt), eased interest rates, changed the rules at the discount window, and even supported stocks- taking equity in several companies etc.)

The Fed can look back over the past 5-6 years and affirm that they have stabilized the economy (domestically and internationally). Now its time to get back to part two of their agenda; controlling inflation.

Monetary policy is constantly manipulated by the Fed, that is nothing new. What is new, however, is the transparency of “Fed Speak” and the process the Fed used to implement their policy tools. In the past, the Fed wouldn’t announce policy changes, specialists and insiders would de-cypher Fed jargon and Treasury trades to queue rate directives. Today the Fed routinely announces their intentions publicly. In the past, monetary policy was generally concentrated in the short end of the yield curve (short-term interest rates) in hopes that long-term rates would follow in unison. Quantitative Easing ( QE, QE2, QE3) is aimed directly at long-term rates, intentionally relieving rates on mortgages, which is where the root of the previous ‘easy money’ crisis began. Mortgage burdens have eased significantly since, as millions of homeowners used this window of low long term rates to refinance their debt and immediately improve current cash flow.

Does quantitative easing definitively cause inflation?

The prevailing wisdom is that QE3 will lead to a spike in inflation as cheap money will fuel more speculative excesses. We believe their is enough slack in the economy and strong demographics at work that will counter these forces. As the process ‘tapers’, some players may scramble to borrow and force rates even higher temporarily. But interest rates returning to pre stimulus prices won’t have a long lasting push on inflation. As a matter of fact, they should actually slow the economy as borrowing costs rise. The Fed realizes if they just turn off the spigot overnight, they would shock the system. It should be noted that the average amount of cash on hand at corporations has swelled to over 20% of assets! The odds of these companies borrowing needs pushing interest rates significantly higher seems far fetched. Will these companies really need to rush out to borrow!?! UNLIKELY… A normalization of interest rates will probably allow these companies to put their money to work by lending (buying debt)!

Demographics at work…

Enter the baby boomers. Baby boomers are heading into retirement in droves. They have spent the last 6 years chasing yield and trying to stretch their dollars further and further in an abnormally low interest rate environment. These people will use any increase in interest rates to put their cash back to work too! Money Market rates and CD’s have paid so poorly, that many have taken more risk than they should carry. Higher interest rates will allow baby boomers the chance to improve their cash flow going forward, as they purchase fixed income products (Treasury, CD, Money Market and Corporate Bonds) once they retire.

The re-normalization of interest rates is a welcome sign that the economy is continuing in the right direction. The fact that the Fed believes it could now address the possibility of inflation, is encouraging. Quantitative easing has dramatically helped people and institutions refinance their debt obligations and improve cash flow when money was tight. “Tapering” will allow those awash in ‘cash’ to put their money back to work without shocking the system. The combination of demographics and historically large amounts of cash on hand will blunt most inflation pressures caused by a ‘normalizing’ of the interest rate environment.

What is going on with gold!?!

The gold market has seen some of its more volatile trading days recently. What does it mean for us as investors? Is it time to buy now?

Gold is a safe haven that has few equals. It is a store of value, but you must pay a ‘cost of carry’ to own gold and it doesn’t produce yield. Gold’s allure is derived from the belief that no matter what happens in the world it will retain value. Can we say the same for the Lira?
The insatiable demand for gold over the past decade was fed by the uncertainty that followed the global economic downturn. Since the economic collapse in 2007-2008, the price of gold has doubled in dollar terms. What we are seeing in the recent violent market drop is a realization that as bad as things got in 2007-08, they are now in the rear-view mirror. Gold Chart

Sure there are plenty issues to be resolved, but the concern wasn’t Cyprus or Spain or deficit spending in 2008. I believe the real fear among every government and many investors was the possibility of a complete failure of fiat money on a global scale. Fiat money is currency that is backed by the full faith of the government issuing it. The United States is rebounding from the recession and the equity market has joined in tandem. Dow Jones chart The dollar has remained steady.

Many gold bugs cling to the decline of local currencies, deficit spending, ‘superficially’ low interest rates, and the great unknown as support for their holdings. The problem is, there is a cost to carry gold and there is 0% yield!  So when things seem to ‘normalize’ gold becomes expensive to hold. Gold doesn’t pay!

The unwind in gold will take some time as central governments and global investors alike adjust to the new normal.

Tax Planning

Tax Planning

Now that tax day has come and gone, its a good time to reflect on what you would have changed about your 2012 taxes. Here’s a couple thoughts to consider for your 2013 tax planning.

  •  Did you accurately track all un-reimbursed employee expenses?
  •  Did you save records of all charitable expenses? Including mileage?
  •  Did you take full advantage of employee matches?
  •  Did you use your FSA/HSA to your full advantage?
  •  Did you take advantage of your state’s 529 plan? Louisiana’s plan offers state tax breaks and even a match!
  •  Did you adjust your withholdings so that you aren’t lending Uncle Sam money all year for free?
  •  Did you maximize your qualified contributions?
  •  Did you save at least 10% of your family’s gross income?
  •  Did you maximize you capital gains? Short term and long term?
  •  Was your portfolio allocated tax efficiently among the different types of accounts?

What’s the best way to fund college in Louisiana?

Parents need to start saving for education expenses as early as possible. It is estimated that over the next 18 years the costs of attending a public university in Louisiana for an undergraduate degree could cost as much as $174,000! People often ask me, “What’s the best way to fund college expenses for a loved one?” There are a couple options, but a 529 plan trumps the Coverdell and the use of a Roth.

What is a 529 plan?
A 529 plan is qualified plan that was developed to help fund education expenses, using tax benefits as incentives.  Earnings inside of a 529 plan grow tax free, and will be tax exempt if used for Qualified Higher Education Expenses (QHEE). These expenses include tuition, fees, room, board, books, supplies, special needs services, and certain required equipment.
A 529 plan offers flexibility by allowing the account owner to transfer the account to different beneficiaries, even allowing the account holder themselves to be beneficiaries.

A unique advantage to the 529 plan is estate related. Assets inside of a 529 plan are removed from your taxable estate, but the account owner maintains control of the assets. This can be a valuable tool when combined with the opportunity to front load your funding. Front loading allows an individual to stack 5 yrs of gifts ($14k/yr for 5 yrs= $70k all at once). Couples filing jointly can stack $140k at once without generating a taxable gift. When you consider the flexibility of changing beneficiaries, there are few comparable options.

Why is LA START a better 529 plan?
Most states offer 529 plans, but, believe it or not, Louisiana has one of the finest programs in the USA! The Louisiana Student Tuition Assistance and Revenue Trust Program, commonly referred to as the “START Saving Program,” is a great way to save for college and other post secondary schools in a qualified account. Louisiana’s START program is direct sold, which means there is no middleman in between your funds and the plan, you deal directly with the plan administrator which is the Louisiana Office of Student Financial Assistance. The START program has no administrative fees or charges and uses several low cost Vanguard funds, leaving more money for your beneficiaries to use for college. Direct selling reduces expenses dramatically, but it also explains why so few people are familiar with the plan. Brokers don’t get paid to sell them, so they don’t sell them.
Very few states offer a ‘matching program’ but Louisiana has a match with a sliding scale of 2% to 14% depending on account type and adjusted gross income. These matches are called earning enhancements, they are savings incentives added to your account annually. Consider earnings enhancements as ‘free money’ for post secondary education savings.

Another benefit of the Louisiana plan offers a state tax break for account owners based on each year’s contributions. Couples can reduce their taxable base by $4,800/yr and individuals $2,400/yr.
Also, it should be noted that one of the fixed income investments offered is a deposit in the Louisiana Principal Protection Fund is guaranteed by the State of Louisiana and last year this fixed income fund yielded over 2.5%.

 How will a 529 affect financial aid?
 The assets inside of a 529 plan remain the possession of the account holder which will greatly reduce the impact of a 529 plan on a student. Parental assets are currently assessed at a maximum of 5.64% of total value for the Expected Family Contribution(EFC) calculation used by FAFSA.  Grandparents 529 plans will be assessed a higher EFC, but will only affect the financial aid the year following the distribution. Grandparents should consider saving their 529 plan distributions for senior year if reducing financial aid availability is a concern. Here are the details on Effective Family Contribution EFC.

What if my beneficiary gets a scholarship?
If your beneficiary is fortunate enough to get a scholarship, what can you do with the funds inside of the 529 plan? It is worth noting that most scholarships will only cover a portion of a student’s qualified expenses that could be funded out of your 529. But if it looks like you will still have money left in the account after paying these expenses, there are a couple alternatives. The IRS allows account owners to refund assets equal to the value of the annual scholarship without incurring the 10% penalty (contributions are never taxed, earnings will be taxed as ordinary income). Another way to use excess 529 funds is to simply change beneficiaries.

How do I get started?

To open a 529 plan with the LA START, either the beneficiary or the account owner needs to be a Louisiana resident when the account is opened. Once the account is open, residency is no longer necessary. There are 6 categories of account ownership. Accounts can be opened with as little as $10. Once the account is open, there are no time limits for funding or distributions. START funds can be used for qualified higher education programs in ANY state.