10 Steps To Improve Your Financial Life

1.) Get Organized: Pull out that old shoe box where you keep all those important documents about your financial life and finally get organized. Don’t just make a neater pile; actually create a categorized filing system. Categories you may want to include: company benefits info, health and dental insurance, life and disability insurance policies, home and auto insurance coverage, retirement account statements, your kid’s college fund statements, Wills, Power of Attorney, Trusts, tax returns, and all loan documents.

2.) Reflection & Direction: Now that you have the “Good, Bad, and the Ugly” of your financial life all organized in front of you, reflect on all the dumb money decisions you have made in your lifetime. All the ones where you wish you had a “do-over”. Now focus on the lessons you learned from those mistakes, and write them down. Next, really think about what you want for your financial life. What does financial security and independence truly look like for you? What scares the hell out of you? What do you really want in your golden years? How does debt and overspending make you feel? Where would you like to send your kids to college?

3.) Live Within Your Means: This is not rocket science. We all know we should live within our means, but yet this is where we all struggle the most. Our culture has ingrained in us that if we want it now, then we should have it now. This has driven many of us to overspend and rack up huge amounts of debt. The savings rate by Americans is lower than ever before. It’s time we put our “big boy panties” on and start acting like responsible adults! To create your budget you can use some fancy software program, an Excel spreadsheet like what’s available on my website, or just use a note pad. It really doesn't matter. Use whatever method is easier for you. You are no longer allowed to sit back scratching your head wondering where all your money is going. The hard part is not creating the budget, but actually having the discipline to stick it. First, just list all your income sources for the upcoming month. Then list all of your expenses for the upcoming month. Don’t try to convince me you have no idea what your expenses are! It’s 2012. We all have access to online banking which will show you in great detail where you have been spending your money. If you have more expenses than income, something has to go OR you must produce more income. See, it’s not rocket science. Start analyzing where you are wasting the most money. For many people this will be food. We all go out to eat way too much. So STOP it!!!. Cut what expenses that can be cut out of your budget then stick to it! A great FREE resource for budgeting is www.Mint.com.

4.) Create a Balance Sheet: This is nothing more than a fancy name for a list of all the things you own (assets) minus all the people you owe (liabilities or debts).  This is the starting point of the scorecard on your financial life. Beside each of your debts, list the interest rate and minimum monthly payment for each. Make it your number one goal to get to a positive Net-Worth (assets-debts) if you aren't there already.

5.) Prepare For The Worst: Most people try to skip some or all of the areas of this one. But if your financial plan is going to come to fruition in the face of adversity you must have proper risk management. I recommend you seek professional help in many of these areas. There is no way I can be detailed enough in this article. Don’t confuse the following list to mean that I am simply suggesting you go buy stripped down basic insurance products. You need to own the proper coverage limits based on your unique situation with a quality company. And that’s why you should seek the help of a professional. Here is a list of all the Risk Management areas: Cash Reserve Fund, Health Insurance Coverage, Home & Auto Insurance Coverage, Personal Liability Coverage, Life & Disability Coverage, Long Term Care Funding, and ID Theft Protection.

6.) No Consumer Debt: To become financial independent you must get out of and stay out of consumer debt. That means no credit cards, credit lines, or other high interest debt. I consider high interest debt anything with an interest rate over 6% in today’s low yield environment. Your first order of business after you have covered all the needed risk management areas is to pay off all consumer debt ASAP before you start saving. It makes absolutely no sense to contribute to your IRA where you will be lucky to get an 8% return over the next decade and pay 18% interest on a credit card.

7.) Plan for Major Purchases, Retirement, and Sending the Munchkins to College: Do you have to replace a vehicle in the near future? Do you have to pay for braces for little Suzie? If so, you will want to save for these types of things first. Why? Because it’s highly unlikely you can go without a vehicle. And little Suzie can’t go without straight teeth, unless of course you live in the Deep South. So if you don’t plan to pay for those sorts of things separately the money will either come out of your retirement fund, cash reserve fund, or you will be forced to go back into debt. As for retirement and college savings, there is no magic savings percentage I can give you. Obviously the more you can save the better. We all have different ideas of what retirement will look like. So I highly recommend working with a Certified Financial Planner to develop the proper plan. But let’s not get too wrapped up in the numbers. You can only control what you can control. If you aren’t able to save 15-20% of your income (or whatever!) it doesn’t matter what I tell you should be saving. So control what you can, and save the maximum you are able towards retirement and college.

8.) Recognize What a Professional Investment Strategy Is (and Isn't): This one is a blog post (or more) all by itself. A couple things here: Most financial advisors are sales people. So beware of taking investment advice from someone who is paid by what they sell or based on the size of your account. Work with a Fee-Only Advisor, someone who is paid only to provide advice. And don’t try to do this on your own. A sound investment strategy should be based on your unique situation with a focus on diversification, low costs, and common sense.  Contact me for free review of your investment strategy.

9.) Avoid the Tax Man: No one wants to pay more in taxes than they have to. The more complex your situation, the more you should seek out an extremely knowledgeable tax person. Don’t try to be cheap here. Proper tax planning will save you way more than it costs you. And avoid places like “H&R Hack”. Far too often I see tax returns with all kinds of mistakes coming from these guys. If your situation is fairly simple, like you earn a modest W2 income for example, programs like Turbo Tax are perfectly capable of helping you. But hire an expert if you own rental property, a business, or you are a high income earner.

10.) Get a Will: Just as no one wants to talk about insurance, people really don’t want to talk about incapacitation, death, and who will get your stuff. But you must protect your assets and your heirs by having a proper Estate Plan. At the very least you need a Will, Healthcare Directive, and a Power of Attorney. And don’t try to use some website like wwww.USCrappyLegalForms.com. You need expert advice from a qualified Estate Planning Attorney.

I have painted some very broad stokes in this article. There is no way I could cover it all, and do each area justice in blog post. My goal is for you to realize that true Financial Planning involves many moving parts. You need help of a Certified Financial Planner along with many other professionals. Contact me for a free initial consultation at www.JasonQuallsCFP.com.

Should You Hate Your Financial Advisor?

We all want to be around people we like. Many of us will only spend money at a restaurant or business because we know the owners or employees.

But it may be best if you really don’t like your Financial Advisor.

Let's assume you and your Advisor become close friends outside of a typical business arrangement. He sends you birthday cards, takes you to play golf, out to lunch etc. Maybe you belong to some of the same civic organizations or go to the same church. Or your kids go to same school and they are also friends. Heck maybe you were "BFF’s" back in college.

It may not be such a good idea to develop such a close personal relationship with your Financial Advisor. 

Here’s why… If you and your Advisor are big bud’s, what happens if you find out that he or she hasn't been giving you the best advice? 

What if you decide to get a review of your current plan from a Certified Financial Planner, and you learn that your plan has a lot holes in it? Your "friend" the Financial Advisor has sold you an insurance policy or an annuity you didn’t need. And maybe some crappy mutual funds that are way too expensive. Basically you learn that your "BFF" the Financial Advisor has made many bad recomendations.

What are you gonna do? Can you imagine how difficult your next conversation will be? Do you think you will still be "BFF's" after you FIRE him or her?

That’s why you should hate your Financial Advisor OR at least work with an Advisor who doesn't get paid to sell you and must act in your best interest at all times.

For more about my commission free, objective financial planning process, go to www.JasonQuallsCFP.com or call 615-878-2134.

Your Net Worth vs Joe Biden’s

“They may be the most powerful couples in the world and rub shoulders with the likes of George Clooney and the Queen of England, but the Obamas and Bidens face many of the same financial challenges as the rest of us – neglect, inertia, poor diversification and spotty investments.”

I came across a July article of Kiplinger magazine disclosing an amazing fact about VP Joe Biden. He has a total net worth of only $215,000. The whole purpose of the article was to show that even the powerful politicians should be paying closer attention to their money.

Obamas and Bidens Finances

• Both the Obamas and Bidens have high-interest loans. Obama has a mortgage on his old Chicago house at 5.625% interest, and Biden has other loans over $65,000 in the 7.5% and 9.9% range. Maybe no one has told him that rates are at historic lows?
• The Bidens also have 9 total checking and/or savings accounts in their names ranging from anywhere between $1,000 to $15,000. Umm... maybe it’s time for some consolidation?
• The Obamas are far too conservative and poorly diversified, while the Bidens are too spread out.
• The Obamas have 92% of their money in cash at around $4.7 Million but only $325,000 in mutual funds.  In fact, they only own 1 fund: The Vanguard Index 500.
• The Bidens have 6 small cash-value life insurance policies, of which they’ve taken loans out against between 5%-8%, and also looks like they have a variable annuity.
• The Obamas have between $100,000 and $200,000 in each of the girls’ 529 college savings accounts. Least he's doing something right!

Looks like even if you have the “Gift of Gab” to be elected the leader of the free world, you can be still be dumb enough to make bonehead financial decisions. Maybe it’s not entirely his fault? His financial advisor may be a commission-based financial hack job! So he didn’t build that...

Love him or hate him, Mitt Romney has been dang good with his money. His net worth is estimated at about $250 million.

Who would you rather have as the CEO of our country?

If you want to make sure you aren’t making the same mistakes as the Obamas and Bidens, work with a Fee-Only Certified Financial Planner like me ;D www.JasonQuallsCFP.com

Here is a link to the Kiplinger article: http://www.kiplinger.com/features/archives/obama-biden-family-personal-finances.html

Selecting The Right Business Entity

Whether you are a new business or an existing business, selecting the best legal entity affects not only profitability and operations, but also your tax bill and your risk exposure. Proper business planning should tie together your business strategies with your personal tax, investment and estate planning goals. Apart from protecting the owners from liabilities, income taxation is probably the most important factor when choosing an entity structure. There are 4 main types of business entities: C-corp, S-corp, Partnership, and an LLC. 

The C corporation or “regular” corporation is subject to “double taxation.” This means that the corporation pays tax on its net profits, and when dividends are paid to its shareholders, the shareholders also pay tax on those dividends. If a C corporation has net losses, it must use them against its own income, either carrying the losses back to obtain refunds of prior years’ taxes, or carrying them forward to offset future years’ income, or both. C corporation shareholder/employees generally receive income as either salary or dividends. The corporation can deduct compensation paid to employees, while dividends are not deductible, and therefore are paid after tax. At the employee level, wages will generally be taxed at a higher rate than dividends because wages are ordinary income with rates up to 35 percent, and they are also subject to employment tax. Qualified dividends, on the other hand, are currently taxed at a maximum federal rate of 15 percent, without employment tax. Remember that dividends must be paid to all shareholders pro rata, while compensation can be customized. 

S corporations, partnerships and limited liability companies (LLCs) generally are “pass-through” entities for tax purposes. This means that the net profits or losses of the entity are reported directly on the owners’ individual income tax returns, and the entity pays no tax itself. 

When considering which entity is best for you, do not limit your consideration exclusively to the tax benefits with the various entity structures. Think ahead to what types of assets the business will have, how you will finance the business, what will happen when you are winding down or liquidating the business and how or when you intend to take distributions from the business. Sometimes it makes sense to change your business structure after you have been operating in your initial form in order to accommodate new goals or facts. Make certain you thoroughly understand the tax consequences before making a change. For more details on business entities read the CBIZ Business Tax Planning Guide.

For more about my unique financial planning practice go to www.jasonwqualls.com

How To Protect Your Child From Identity Theft

Imagine this: Your daughter has finally flown the nest! She applies for her first mortgage or car loan, and she's denied. Turns out, her identity was stolen years ago, and she’s thousands of dollars in debt.

Child identity theft is more common than you think. Stats suggest that as many as 1 out of every 10 kids will be a victim. In fact, kids today are 50 times more susceptible than their parents.

Scammers target children—even infants!—so they have years to use the identity (racking up credit card debt, buying a home or car, getting a job or driver’s license) before being discovered.

Fortunately, parents can help protect their kids. Here’s how:

Be a Little Nosy

In the era of “helicopter” parenting, no one wants to be accused of hovering too closely. But parents should be aware of the websites their children visit, especially elementary schoolers surfing the Internet alone.

Decide which websites are appropriate, and block any inappropriate sites using parental control software. Set a few ground rules: don’t buy anything online without permission, never open emails from a stranger, and never click on pop-up ads.

Set Rules About Sharing

Over-sharing on social networks like Facebook can be risky. Make it a rule that your child never gives out any personal information like her birth-date, address, phone number, or school when on the computer.

Thieves often only need your name and the last four digits of your Social Security number and voila, they’re able to call your bank and request a change of address—meaning they start receiving your sensitive documents.

Explain that scammers use Social Security numbers or other information to open credit cards or create fake documents, racking up way more debt than she will ever have her piggy bank.

Be On Fraud Alert

To make sure your kids are in the clear, contact each of the credit reporting agencies (TransUnion, Experian, and Equifax) every few years and ask if your child has a credit report. If yes, check it for fraud or errors. No report means there’s no problem.

Make Kids Street Smart

Start a conversation about identity theft by reviewing the tips at MoneyAsYouGrow.org. And for more ways to safeguard your child’s financial future, visit ftc.gov/idtheft.

At the very least, following these four steps will ensure that once your kids are older, they won’t be naive enough to post photos of their debit or credit cards on Twitter. (Yes, folks are really doing that!)
 

Contributed by Beth Kobliner

For more on "Teaching Your Kids About Money" go to www.JasonWQualls.com