What is the Fiscal Cliff?

What is this “Fiscal Cliff” you keep hearing about on the news?

It is the combination of large spending cuts and tax increases that are scheduled to be automatically enacted at the start of 2013. The Bush tax cuts are set to expire for millions of Americans, and billions of dollars of spending cuts will take effect because Congress couldn’t reach a deal last year to reduce the deficit by at least $1.2 trillion over 10 years.

Democrats want a combination of spending cuts and tax increases on the high income earners, while Republicans want to cut spending, but don’t want to raise taxes. Both want to avoid the fiscal cliff because of the huge impact on our economy.

What are the immediate threats to the economy?

The sudden rise in taxes and cuts in spending would have a harsh impact. According to an analysis by J.P. Morgan economist Michael Feroli, $280 billion would be pulled out of the economy by the expiration of the Bush tax cuts, and $125 million from the expiration of the Obama payroll-tax holiday. Also, $40 million from the expiration of emergency unemployment benefits, and $98 billion from Budget Control Act spending cuts.

How would this impact growth?

The nonpartisan Congressional Budget Office projects that if the tax increases and spending cuts go into effect, the economy would contract at a 2.9% annualized rate in the first six months of 2013 and the unemployment rate would rise to 9.1% at the end of next year. If the spending cuts and tax increases are avoided, the economy would grow at an anemic 1.7% next year and unemployment would fall slightly to 8.0% by the end of next year.

My Thoughts

We've got to stop kicking the can down the road!!! Our economy needs certainty, and we must demand that the government make the decision that is best for our economy, not the one that holds the most political gain. Our economy is a disaster and it's time to "pay the piper". Even if that means we all have to chip in.

Learn more about my unique view on Financial Planning at www.jasonwqualls.com

Does the Stock Market pick the President?

Does the stock market influence the presidential election?

InvestTech Research of Montana has concluded that the direction of the stock market during the last two months before the election has the greatest influence on the outcome. The Market has predicted 90% of the presidential elections since 1900. There have been only four exceptions to date: 1956, 1968, and 2004. A February 24, 2012 article about this research by Lauren Fox of US News summarizes the results. Of 28 elections during the period, there were 16 during which the stock market went up preceding the election and the incumbent was re-elected in 15 of them. There were 12 elections during which the stock market fell preceding the election and the incumbent lost in 10 of them. 

What's your opinion? Contact me at  www.JasonWQualls.com

5 Reasons Why You Don’t Have a Financial Plan

1.) You are too complacent! Complacency is defined as “Contented to a fault; self-satisfied and unconcerned”. Get off your butt! And get your financial life in order.

2.) You believe that “Financial Planning” is just for people with lots of money or it’s too expensive. This couldn’t be further from the truth. My clients have all levels of net worth. If someone came to me who really needed my help, I would do my best to work the cost of my services into their budget.

3.) You think “Financial Planning” is just about investing or retirement. Nope, not even close. Financial planning involves everything your money touches. Including your budget, investments, taxes, and your estate plan.

4.) You think you “got a guy”. Most so-called Financial Advisors are really just investment sales people with no formal training in financial planning. If your guy works on commission, and isn’t a Certified Financial Planner… You ain’t “got a guy”!

5.) You listen to Dave Ramsey! Oops, did I really just say that? YES!!! While I concede that Mr. Dave is a marketing genius, much of what he teaches about personal finance is crap! Yes, crap! Why is it crap? I could list at least a dozen reasons, but I’ll just stick to a few that really irk me the most. 

• #1 He teaches his followers to only invest in 4 types of mutual funds. If it were really that simple, why don’t all the top money managers in the world follow this strategy? Because it’s a stupid strategy! It’s better than no strategy at all, but it is nowhere near a real investment plan. Follow his strategy, and you'll likely be disappointed by sub-par returns with higher levels of risk when compared to working with a professional.

• #2 He says to ONLY buy mutual funds that charge a commission. How ridiculous is that!? Mutual funds that charge a load or commission are usually actively managed. 60-70% of actively managed mutual funds don’t even beat the S & P 500 Index! And actively managed mutual funds can be 4 or 5 times more expensive than index funds. He says this because all of his “ELP’s” work on commission! And if he told you to only buy “no-load” funds, his “ELP’s” would go out of business.

• #3 He says that bread-winning spouses should only buy 10 times their income in term life insurance. I can’t even bring myself to waste time on this one again! Just find my other posts about life insurance. If you still need convincing that much of what Dave says is crap, I have a little homework assignment for you. Multiply your income by 10. Then go to Google and find the last 5 or 10 years of actual stock market returns because he says to only invest the money in the stock market. Then assume you died 5 or 10 years ago, and your wife was trying to survive by taking 10% of the starting principal balance each year. Next deduct or add back the positive or negative returns of market to/from the remaining balance each year. You will see that your wife will likely run out of money in 7-10 years. But Dave doesn’t tell you that, does he? His advice tramples on widows in my opinion.

Last point on Dave… I think he is AWESOME at the get out of debt stuff. But most of everything else he teaches is just crap. Most CFP’s would not disagree with me. If you still don’t believe me, I would be more than happy to sit down and mathematically prove it to you. How does he get away with giving inaccurate advice? That’s simple… He is not liable for any of the advice he gives because he is in the book selling business, not the financial advisory business.

As I mentioned earlier, Dave is a marketing genius! He figured out a way to package up over-simplified financial planning so he could sell it to the masses. He has tons of followers. But that doesn’t make everything that comes out of his mouth true! Ron Hubbard and Scientology have a ton of followers too! And both have sold millions of books. Do you believe in Scientology?

 Now, go get started on a real Financial Plan! www.jasonwqualls.com

Financial Tips For Single People

Many think that financial planning is not as important for singles because they only have to worry about themselves. There is no spouse or children to consider. But in fact, it’s the absence of immediate family that makes it even more important for singles to make sure their financial life is in order. After all, singles must face every financial issue alone. 

First, let me clarify how I define a single person: You do not have children, you are not married, and you live on your own.

Here are my Financial Planning Tips for Singles:

1.) YOU DON'T GET TO BLOW ALL YOUR MONEY!:  Many singles are spenders, not savers. They don’t feel the same need to save as those who are married with children. But singles will need to retire one day, just like their married counterparts. That means even if you’re single, you must save some money!

• Save some cash for the unexpected. (Examples: pay your health insurance deductible, repair your vehicle, or for living expenses in case you lose your job etc.)
• Contribute to your 401k up to your employer's match.
• Max out a Roth IRA. It is one of the most magnificent retirement tools available. $5,000 is the limit in 2012 if you are under age 50. 

2.) PROTECT YOUR BIGGEST ASSET!  Unless you are financially independent, like you have won the lottery or have a trust fund for example, you need disability insurance. Your income is your biggest asset! Why do I say that? Nothing you own is more valuable than your income. What is the value of your income? Let's say you earn $50,000 per year and you plan on working the next 20 years. Your income is worth more 1 million dollars to you (50k x 20 years), and you must protect it with Disability Insurance.

There is about a 20-30% chance you will get disabled before you retire. If you lose your income, your financial plan is worthless. Your income drives everything in your financial plan!

• Buy Disability Insurance through your employer first. Disability insurance offered through your job, usually provides you with 60% of your income if you become disabled and unable to work.
• If you would not be able to live off of 60% of your income OR your employer doesn't offer it, you need to buy a private policy. Typically, you can insure up to 75-85% of your income!

3.) YOU MAY DIE ALONE, BUT DON'T DIE BROKE AND ALONE!  If you are in your 40’s or 50’s, it’s time to start thinking about buying Long Term Care Insurance. Approximately 70% of those Americans who live age 65 will need Long-Term care services at some point in their lives.

•  The average cost of a nursing home is $60,000-80,000 per year. This will smash your nest egg!
• Buy Long Term Care Insurance by age 50! Waiting to buy it will likely cost you a lot more. And the longer you wait, the more likely you will have health issues that affect your insure-ability. One very popular radio show pundit tells his listeners not to buy LTC insurance till age 55+. Well, I don’t live in some radio, financial baby steps wonder land! I live in the real world, with real people! I let math tell the story, and math doesn’t lie. I’ve ran the numbers on real life cases, waiting till your over age 55 will likely cost you way more than buying it when you are younger.

4.) YOU MAY NEED LIFE INSURANCE:  Some guru's say that single people don’t need life insurance because there is no one left behind who depends on them. Well, I have some breaking news for them! Single people can become married people, and it is possible for single people to have children. Unless you are certain you aren’t ever going to get married or have children, then I would recommend you own life insurance. Term life insurance is cheap and easy to get when you are young, but when you get old, not so much. Buying life insurance in anticipation of future life changes is smart financial planning in my opinion

5.) YES, YOU NEED AN ESTATE PLAN EVEN IF YOU'RE SINGLE:  Lastly, you need to decide who gets your stuff when you die. Unless you would prefer your state government to do that for you. And you also need to name someone to make health care and financial decisions for you if you were to become incapacitated.

• Get a Will
• Get a Living Will
• Get a Health Care Proxy or Directive
• Get a Durable Power of Attorney

Singles need planning too, but you don’t have to go it alone. Hire a trusted advisor, a Fee-Only Financial Planner like me to help. Call to set up a free initial consultation today. 615-878-2134 or go to www.jasonwqualls.com

What is a Health Savings Account?

A health savings account (HSA) is an IRA-like account funded with pretax dollars that grow tax-deferred. The HSA assets may serve a dual purpose:

1. Tax-free and penalty-free distributions can be taken to pay for medical expenses, and penalty-free (but not tax-free) distributions can be taken for any reason starting at age 65.
2. In other words, HSA assets not used for medical expenses become retirement assets.

WHO IS ELIGIBLE FOR HEALTH SAVINGS ACCOUNTS?

• Any individual with a high deductible health insurance plan(HDHP) may establish an HSA.
• An individual must obtain HDHP coverage before opening an HSA.
• An individual must generally not be covered by any health plan that is not an HDHP.
• An individual must not be enrolled in Medicare when opening an HSA.
• An individual must not be claimed as a dependent on another person's tax return, even if the other person does not actually claim the deduction.

WHAT IS A HIGH DEDUCTIBLE HEALTH PLAN?
The requirements for a health plan to be considered a "high deductible" (HDHP) vary, depending on whether the covered individual receives single or family health insurance coverage. 

For single coverage, the policy must have:
a minimum deductible of $1,200 and
a maximum out-of-pocket cost of $6,050.00.

For family coverage, the policy must have:
a minimum deductible of $2,400 and
a maximum out-of-pocket cost of $12,100.

CONTRIBUTIONS
For 2012, $3,100 for an individual or $6,250 for a family

WHEN MUST HSA CONTRIBUTIONS BE MADE?
Like IRAs, contributions may be made until the tax return due date (not including extensions) for the individual. This date is typically April 15th

WHO CONTRIBUTES TO MY HSA?
Contributions may be made in any combination of employer, individual or family member. If your employer contributes to your HSA, your employer must make comparable contributions for all employees with comparable health insurance coverage.

HOW ARE CONTRIBUTIONS TREATED FOR TAX PURPOSES?
Employer contributions are excluded from income and individual contributions are deductible "above the line". That is, a taxpayer does not have to itemize in order to take the contribution as a deduction.

DISTRIBUTIONS
Your HSA dollars can be taken anytime, free from federal income tax, to pay for qualifying medical expenses. HSA funds may be used to pay premiums only for long-term care insurance, COBRA continuation premiums, or other health insurance premiums for people receiving unemployment benefits. Be sure to check your HSA plan for specifics regarding distribution procedures.

CAN I INVEST MY HSA FUNDS?
You can invest through a self-directed brokerage account, which gives you the ability to invest in stocks, bonds and mutual funds with your HSA dollars.

HOW ARE DISTRIBUTIONS TREATED FOR TAX PUPOSES?
If distributions are taken for Qualifying Medical Expenses (QME), the distributions are tax free. Distributions taken for other purposes are taxed at ordinary income tax rates. If the distribution is not taken for a QME and is not due to disability, death or attainment of age 65, a 10% penalty tax applies in addition to the ordinary income tax.

WHAT ARE QUALIFYING MEDICAL EXPENSES?
A Qualifying Medical Expense (QME) is generally an expense incurred maintaining your or your family's health (e.g., diagnostic services, treatments or hospitalization). QMEs do NOT include the payment of health insurance premiums, unless the premiums are for long-term care insurance, health care continuation coverage, or health care coverage while you are receiving unemployment compensation under any federal or state law.

WHAT ARE SOME EXAMPLES OF MEDICAL EXPENSES THAT I CAN PAY TAX-FREE FROM MY HSA?
Medical service fees from doctors, dentists, optometrists, chiropractors, psychiatrists, psychologists, and other certified medical professionals are some of the examples of medical expenses that I can pay tax-free from my HSA.

Prescription drug fees.
Fees for lab work, therapy, nursing services and surgery.
Fees for eyeglasses, contact lenses, hearing aids, false teeth, and any other prosthetic devices and special devices.
Fees for insurance premiums as discussed in the previous question.
Fees for transportation expenses needed for medical, dental or health treatment, plus many other expenses not listed above.

WHAT ARE SOME EXPENSES THAT ARE NOT CONSIDERED QMES?
Payments for cosmetic surgery.
Payments for your general health, such as health club dues.
Stop smoking programs.
Weight loss programs.
Trips for general health improvement.
Payment for illegal medical treatment, such as unapproved procedures.
Payment for premiums for the HDHP.
Payment for premiums for other types of medical insurance, as addressed by the above question.
Funeral, burial or cremation expenses.

WHAT HAPPENS TO MY HSA AT MY DEATH?
At your death, the HSA will pass to your named beneficiary. If the beneficiary is your spouse, the HSA will be re-titled in your spouse's name. If there is no surviving spouse or your spouse is not the beneficiary, then the savings account will cease to be an HSA and will be included in the federal gross income of your estate or named beneficiary.

To learn more about how I can help you get your Financial Life in order, go to www.jasonwqualls.com

When to Hire a Financial Planner

I don't care how smart you think you are about money! It doesn't matter if you are "rich" or "broke" or somewhere in the middle. Everyone can benefit from sound financial advice from a qualified, trained professional Financial Planner.

But when exactly is the right time to hire a financial planner? I don’t think anyone should hire a financial planner until they can answer two questions:

1. What do you want from the relationship?
2. Are you ready to take advice?

What do you want from the relationship? This may seem like a really basic question, but it really isn’t.

Do you want an advisor who will beat the market every year?

If this is your real motivation, forget about it! It’s impossible. No financial advisor or planner can beat the market year in year out. There are investment strategies that work, but nothing works all the time. So, don’t hire an advisor based simply on investment performance. They will likely let you down at some point.

Are you looking to hire an advisor because you need a financial plan?

If so, you need more than an “investment manager”. Hire someone who can look at your situation objectively and has been trained in all aspects of personal finance. Also, hire someone who doesn't receive their compensation based on the recommendations they make. Financial Planning is a process, not an event. If you need a financial plan, only hire a Certified Financial Planner (CFP).

Great Reasons to Hire a Financial Planner

First, you can admit that you don’t know everything and you need direction.

Second, you need financial discipline or someone to hold you accountable. In other words, you need to be saved from yourself. This may sound crazy but for those of you who really understand what I’m talking about, you know it’s true.

Most of us are our own worst enemy when it comes to investing or spending. And just having someone hold you accountable is worth many times the price you will pay. Think about the last stupid investment you made. What if you could have avoided it? Think about the all the money you wasted last year because nobody scrutinized your spending. How much would you have saved if you had someone to help you stick to a budget?


But… Are you ready to take advice?

Be honest with yourself. If you’re not willing to take direction, don’t bother hiring a financial planner. You’ll spend a lot of time and money for nothing.


For more about my unique Financial Planning process called "Financial Life Coaching", go to www.jasonWqualls.com

Buying The Right Type of Life Insurance

Let's start off with the basics. There are two main types of life insurance: Term and Permanent.

Both are conceptually easy to understand. Term Life Insurance covers you for a specified period or term, like 20 years for example. Permanent Life Insurance covers you permanently or for your entire life, or at least it's supposed to. Permanent Life can have many sub-names like whole life, variable life, universal life or single premium life which all work differently.

When you buy Term insurance, you are only paying for the cost of insurance which is usually very inexpensive. In a Permanent policy, premiums are usually substantially higher than term. Some of the premium goes towards the cost of insurance and the remainder builds in an account called the "cash value". Cash values typically grow tax deferred.

You have probably heard all the media "hubbub" about which type of life insurance you should buy. Radio show pundits and magazine articles tell us to only buy term, or whole life is a bad investment, or buy term and investment the difference.

Are those things really true? Is it really that simple? What's the truth?

Well, honestly the type of life insurance you should buy depends on many things. Some people only need term but others may need permanent.

Tell me exactly how long you will need life insurance and when you will die, and I can tell you the correct type you should own. But like most other financial planning decisions, we must make some assumptions or best guesses about the future. But it's very difficult to know when you are 20, 30 or even 40 what your financial life will really be like at age 60.

Here are some truths:

1. Most permanent policies are junk! But not all.
2. Any type of life insurance is usually better than NO life insurance.
3. Most people should buy life insurance for protection only NOT as an investment.
4. Most people that end up buying the wrong type of life insurance got their advice from a insurance agent, not an objective financial planner.

This issue is way to complex for me to cover every detail in a blog post. My hope here is to get you to understand the basics so you can go hire a professional to help you that isn't a financial sales person.

You most likely need Term if:

• You are just starting out
• Have no discretionary income and/or low net worth
• Its very easy to forecast the length of your insurance need (10 years left on a mortgage for example)
• Have a very limited amount of savings left over for retirement
• You simply can't afford permanent insurance, even it were a good deal

When Permanent Life may be a fit:

• Very strong, predictable cash flow
• High income earner
• You have exhausted all possible retirement savings vehicles (401k, Roth, etc.)
• Will have Estate Planning liquidity issues
• Its very hard to predict the age you will no longer need life insurance
• You just want your life insurance to be there when you die! 
• You have done your research! Not all life insurance policies are equal!
• You understand all the workings of the policy (expenses, interest rate, etc)

Why does Permanent Life insurance get such a bad rap? I believe most people fear what they don't understand. And Permanent insurance can be extremely difficult to understand. Also, most Permanent Life policies have too many internal expenses which can make them a terrible deal. But some companies do a pretty good job of keeping internal costs down, therefore increasing the internal rate or return on your "cash value".

Here is one concept:
Most term polices never pay a death benefit because people out live them or cancel them. Let's say you compare 2 options: 1.) invest money in a taxable investment OR 2.) buy permanent life insurance where your policy builds cash value. If the cash value of your life insurance net of expenses could earn more than your investment account net of taxes, then you would have more money inside the cash value. OR vice versa. Sounds simple, right? Not exactly!

You want to make sure you are comparing apples to apples. If the cash value grows at a fixed rate, then compare it to fixed income assets in your investment account. If your investment account is invested in stock mutual funds, compare it to a comparable allocation in Variable Life. This is where the media falls short on helping you understand Permanent life insurance. They try to compare fixed rate cash value insurance to the stock market over the long term. That's like comparing a Porsche to a Subaru!

But its not all about the cash value rate of return. What about the rate of return on the death benefit? Like I mentioned earlier, this issue is far too complex to cover all the points here!

Here is your take away. Term Insurance is right for many Americans. Some types of Permanent policies may be a fit for others. It just depends on the unique situation of the individual. This can be a very confusing area. Seek out unbiased, objective advice from a Fee-Only Certified Financial Planner. www.jasonWqualls.com