Category Archives: Financial

Take A Savings Selfie; Why Establishing A Solid Savings Plan Is Cool

By Lena Rizkallah, Money Moxie

My teen-aged nieces came to visit me in New York a few weeks ago.  Besides spending 3 hours agonizing over what color “cheeksters” to buy at Pink, waiting another 45 minutes for them to stand in line to try on ONE tank top at H&M, and then rounding out the rest of the day with more, um, shopping (ie. THEM going through racks of midriff-baring tops and teeny ‘distressed’ jean shorts, ME sitting in a chair boyfriend-style playing Fruit Ninja), we also spent some quality time taking Instagram pictures of each other and watching YouTube on our Iphones. In addition to finding out which stores in Soho have the most comfortable chairs (Uniglo and Arsizia tied for first place, Mango came in dead last), I SURE learned a lot that weekend.

D & K shopping like champions!

D & K shopping like champions!

So many shoes so little time!

So many shoes so little time!

For example, I had heard of but never exactly knew what ‘twerking’ was until my niece pulled up about a dozen examples of little 13-year old girls jiggling their behinds, sometimes against a wall, backed up to their BFF or upside-down.  But now I know, so thanks D and K!

I had also never watched the show “Orange is the New Black” until D and K told me how awesome it is and stayed up all night watching back-to-back episodes.   But everyone can calm down because now I know what it is and as soon as I join Netflix and watch all the episodes of “Arrested Development,” I’m on it.

My nieces also introduced me to the wild and crazy world of “selfies.”  I’ve never really had a problem taking a picture of myself in different poses, as long as I could edit, delete or Photoshop them until absolutely perfect.  But with a selfie, you take the picture and then post it all over the place, like on Twitter, Instagram, Facebook, Snapchat, etc.  All weekend, I watched my nieces photograph different variations of “duckface” or close-up selfies with each other, or with my dog, or in a Pink push-up bra showing off cleavage, and I was amazed at their bravado and lack of self-consciousness. They didn’t care if the picture didn’t show them in their best light or the photo revealed some flaws–not that they have any.  But they put their selfies out there for the world to see, and they kept them coming!

The original selfie

The original selfie

Savings  Through The Years

The idea of a selfie got me thinking about how honest we are with ourselves when it comes to saving, or whether we ‘edit’ some of the truth behind our savings  habits.  Up until the mid-1980’s Americans saved a significant amount of their earnings.  When employer saving plans like 401k plans were introduced in the 1980’s, the savings rate started to decrease because most Americans were encouraged to sock money away in these tax-deferred plans.  In addition, as interest rates declined, Americans were less incentivized to put extra money in savings accounts, and instead invested in real estate and equities for better returns.  The upside to this was, well, the possibility of better returns. The downside was poor returns and liquidity challenges.

However, as Americans began to rely more on credit to afford a certain lifestyle, the savings rate declined even further so that by 2005, Americans were saving less than 1% a year.  Compare that with an average saving rate of 10% per person in Europe.  Since the recession started, however, and as many people lost their jobs, credit became more difficult to come by and salaries stagnated, Americans got better at living within our means and putting more money away.  At the height of the recession the personal savings rate reached 5.5% but has since decreased to about 2.5% in early 2013.

Saving Habits

Why does this matter?  Think about the past few years of the downturn and whether you’ve had to make some lifestyle changes as a result.  Would things have  been different if you had a bigger cushion to lean on during tough times?  And it’s not only in case of tough economic times; establishing solid saving habits is crucial not just for the immediate term but also for retirement.  As Americans live longer lives and as the promise of Social Security payments and employer-based pensions begin to diminish and in some cases disappear, we are ultimately responsible for funding our retirement.

Say NO To Retirement Drama

Retirement probably seems a long way off for many of us, but it’s important to start saving as soon as we start earning.  Here are some tips:

– If your employer offers a 401k plan, you may already be automatically enrolled.  Check!

– Make sure you are enrolled and then make sure you’re saving more than the minimum if you can afford it.  Remember, this money comes directly out of your paycheck before it’s taxed.  So you never see it long enough to miss it.  And in the meantime, the money is invested and growing tax-deferred until retirement.

– Plus, if your company offers a matching contribution, all the more reason to sock away that moulah!

Emergency Fund Fun

But first things first.  If there’s one thing many of us have learned from the recent weak economy it’s the importance of an emergency fund.  Here are some tips:

– Your emergency fund should be able to cover at least six months of expenses in case you lose a job or life gets rough.  If you’re up-to-date on your bills, an emergency fund is the next goal to tackle.

– Every month, once you’ve tackled your budget and paid rent, bills, etc. then pay yourself.  That is, put 5-10% of your earnings away in your emergency fund.

– Do it consistently and on months that you can afford to save more, do it.

– Once you’ve reached the magic number for your fund, start saving for your next goal whether for an investing account, a home, a dream vacation etc.

Are you saving enough?  Take this savings selfie:

– How much money do you put in your savings account on a monthly and annual basis?

– Are you aware of your monthly “necessary” expenses?  How much would you need to save for your emergency fund?

– Based on your current monthly budget including bills/debt and current income, how long will it take for you to save for a six month emergency fund if you save 5-10% or more of monthly income?

– If you’re not saving enough, what steps can you take to start (ie. avoid the middle of the night online shopping-scapade, dinners out, etc).

While shopping with my nieces I even learned a big lesson on shopping and saving. Before the trip, they had saved up their summer job money and also got some shopping money from Big Daddy.  But instead of impulsive spending at every store, they shopped carefully, made their selections thoughtfully and really considered the value of some of the items they were trying on.  In the end, they came away with some great pieces they could share–and both went home with most of their savings still in their wallets!

Best selfie ever

Best selfie ever

Where We At? Quick Recap of the Markets, Economy & Taxes And Where We’re Headed!

I don’t have to look at the calendar to know that it’s already August.  All I have to do is notice that people waiting on the subway platform have a look of despair that comes only after giving up the hope of showing up for work wrinkle- and sweat-free.   These days, my dog doesn’t linger on her walks and gets her business done in .0004 seconds.  And if people aren’t already on vacation, they’ll show up for work  in August–sure– but get nothing done.  I mean, why hustle to get something on the boss’ desk when she won’t look at it until September 4?

August also reminds me that the year is passing quickly.  It seems like not so long ago since the American Taxpayer Relief Act (“the tax bill”) was passed (back in January).  Remember how everyone was worried that the moment January 1, 2013 came around, taxes would go up, estate exemptions  would decrease and many credits and middle class benefits would disappear?  And then good ol’ Congress swooped in with a last-minute  bill that kept taxes low for many Americans and increased the tax rate for the “wealthy.”  And other stuff.  For a refresher on all the fun details of the tax bill, see https://moneymoxie.wordpress.com/2013/01/03/new-year-new-deal/

So what’s changed and what can we expect when Congress returns from summer break in September?

1. Taxes

While the tax bill kept taxes at their low rate for most Americans, it allowed income and capital gains rates to go up for individuals/families who earn $400,000 and more.    It also limited certain exemptions for higher earners (Pease and PEP exemptions), let some middle class benefits expire like the payroll tax holiday, and made permanent the AMT exemption.  In addition, 2013 is the first year that an additional 3.8% tax will be applied on investment income earned by higher income individuals, thanks to a provision in the healthcare act.

2. The Deficit

Since the downturn began, politicians and economists alike were alarmed at the drastic increase in the federal deficit; not since the 1940s was our deficit at such dangerously high levels. Under normal circumstances, the deficit to GDP (gross domestic product–ie. national economic output) ratio hovers at around 3%.  In the past few years, however, the deficit reached beyond $1.3 trillion in 2010 and about 10% of GDP, causing the US debt level to increase to historic levels.

The good news is that the Office of Management and Budget announced in July that it expects the deficit to fall to $759 billion for year ending 2013, or 4.7% of GDP, its lowest in five years.  The improvement in the deficit is a result of the economy picking up speed as well as an increase in tax collections and the savings from the automatic spending cuts known as the sequester (for a refresher on the sequester, take a gander at https://moneymoxie.wordpress.com/2013/02/21/the-sequeezter-how-the-coming-budget-cuts-may-affect-you/ .)

3. The Economy

Since the beginning of the year, there’s been a marked improvement in the economy.  Last week, it was reported that the economy grew by 1.7% in the second quarter which was an improvement over the 1.1% growth achieved in the first quarter of 2013. The unemployment rate also decreased to 7.4%, its lowest level in five years, although the increase in jobs was a result of discouraged unemployed workers leaving the workforce.  Going forward, many economists are optimistic that companies across most industries will continue to expand, boosting employment and growth into 2014.

4. The Stock Market

Despite some gloomy reports about US markets in the beginning of the year, as well as the continued downturn in Europe and slowing economies of emerging markets, the US stock market has been on a roll!   Recently, the S & P surpassed 1700 in intraday trading and has been consistently closing above 1500 for months.  The market is  up over 20% to date, and up near 12% from its pre-recession high.

What to expect after summer break…

1. Debt Ceiling Debate

Just when we thought the sunnier economic outlook would result in a more harmonious Congress, BAM!  The debt ceiling debate comes along!  While this winter, we mostly avoided a repeat of the summer of 2010 debt ceiling fights that caused Standard & Poor to lower the credit rating of the US–mainly because the automatic spending cuts were instituted in February which helped to reduce the deficit anyway—get your popcorn ready for another round of debates in September.  While many Republicans and small business owners want the President to roll back the tax increases instituted by the tax bill, the President has called for a decrease in the corporate tax rate from 35% to 28% as long as Republicans will agree to additional spending on infrastructure and development projects.  There are also calls for additional savings by limiting or doing away with tax write-offs of municipal bond interest, real estate interest and charitable contributions.

2. The Stock Market And The Fed

While the market has been on a high this year, many investors fear a pullback if not an all-out crash later this year.  One huge factor in whether the market will continue to boil or bust is if or when the Fed will decide to slow its $85 billion in monthly purchases of bonds known as quantitative easing (QE3). The fear is that once the Fed bond purchases slow or stop, interest rates will go up which could have a drastic effect on investments and wealth.  The good news is the Fed reported earlier this year that it would not begin to slow these purchases until 2014, but could change its mind sooner if the economy continues to improve.

What should you do to prepare for stormy weather?

Make an appointment to speak with your financial advisor to discuss coming events in Washington and Wall Street and how they may affect your investment portfolio.  Don’t wait for your advisor to call you; be proactive. After all, it’s your money!

– If you don’t already have an advisor, find out who is near you and who you click with. http://www.napfa.org/

http://www.fpanet.org/

– Consider low-cost investments that mirror a specific exchange or index like an Exchange Traded Fund (ETF) that can offer strong returns and an alternative to owning stocks or mutual funds.

– To hedge against rising inflation, consider adding TIPS, commodity funds and real estate trusts (REITs) to your overall portfolio.

– If you’re in the higher tax brackets, make sure to include tax efficient investments in your portfolio like separately managed accounts.

– Pay attention to how you invest your retirement account vs. your investment portfolio.  It may be more advantageous to include taxable investments in your retirement account since those will be tax-deferred until retirement, and keep tax efficient or tax-free investments in your taxable  investment portfolio.

But first–enjoy the rest of the summer!

5 Investment Tips From Kim And Kanye’s Baby

Please don’t judge me.

Listen, I’m not ashamed to admit that I am a reality TV connoisseur.  True, I am a nerd through-and-through (and not the cool-yet-awkward, tech-savvy, Lena Dunham kind). I get excited discussing the value of credit shelter trusts or whether the AMT should be repealed for Pete’s sake!  But on the other hand, I will get super passionate and opinionated when debating whether  it was cool for “Housewives of the OC” ladies Tamra, Vicki and Lydia to ditch Gretchen and Heather after dinner on their recent trip to Cabo San Lucas.  (By the way, it was.  Gretchen and Heather are just a couple of sticks-in-the-mud with veneers.)

I also watch “Keeping Up With the Kardashians” on E.  It’s not because I like watching rich people lay in bed all day in fluffy white robes talking about how stressed out they are, or go on long extravagant family vacations to foreign lands  where they lay around in bed all day in fluffy white robes.  And while I am fascinated (and confused) by the imagination of Bruce Jenner’s plastic surgeon, no, I don’t tune in to the show just to get a glimpse of Bruce’s Farrah Fawcett hair and high cheekbones.  And maybe others are but I am not watching for cracks in the relationship between Kourtney and baby-daddy Scott Disick.

The Kardashians

The Kardashians

I guess I watch the show because it serves its purpose.  Once in a while I want to relax and settle in for completely mindless, unuseful, brain-cell murdering entertainment–and I’m never disappointed!

Well this week was a big week for the Kardashians because Kim and Kanye who’ve been dating since early last year, finally had their baby.  The baby girl came a few weeks early, and while reporters had hovered around Kim throughout her pregnancy and reported her every outfit flub, extra pound gained and every Kim outing sans Kanye, since the birth of Baby K, the family has been very private.

Since I follow the media-hungry Kardashians, I know the eery silence is intentional, even strategic.  Both Kim and Kanye know how to make a ton of money by being in the limelight.  Kim is worth about $40 million while Kanye’s net worth is estimated at $90 million.  Between the two of them, they have been paid millions for sex tapes, law suits, clothing and fragrance lines, appearances and more.  If anyone knows how to turn the birth of a baby into millions of dollah-bills, it’s Kimye.

Awwwww....

Awwwww….

So while Baby North or Kaedance or Kris, Jr. is still only about 6 days old, we know she’ll be well taken care of and will likely be financially savvy and earning her first millions before age 5.  Here are some investment lessons we can learn from the newest edition to America’s Royal Family:

1. Timing is everything

Baby K arrived five weeks early but right before Kanye’s new album Yeezus dropped (ugh).  As a result she secured the time and attention of both mommy and daddy.  If she’d been born around her due date in July, Kanye would’ve been on tour and may have missed the birth and corresponding media circus.  Not to mention Baby K beat out the arrival of a real Royal (Prince William and Kate’s) Baby.

Similarly when investing in the market, it’s important to know when to get in and when to sell.  While a typical buy-and-hold strategy (investing in a mix of assets for a long period of time) can be smart over the long-term, there is value in watching specific companies or sectors for the right time to buy in or cash out.  Most of us are not financial professionals so it’s wise to team up with a trusted advisor who does watch the market, and can guide you in reaching your goals.  And make it a point to learn about investing yourself.  The more familiar you are with the market, the more equipped you’ll be to take advantage of market movements.

2. Sell High

Has anyone seen a picture of Baby K?  No?  Seems odd, doesn’t it, that a family that makes millions from having cameramen documenting their every move (weddings, births, fights, drunken escapades) hasn’t yet thrown open the doors of the NICU to let the cameras in.  Obviously, Kimye–or more likely momager Kris–is shopping around exclusive photos of baby K to the highest bidder–and will likely get millions!

This rule of thumb seems like a no-brainer when investing in equities but it’s hard to determine when the market has peaked and when is a good time to sell off certain positions.  Many investors learned this the hard way back in March 2000 when the tech bubble burst and tech stocks that plummeted.  A similar thing happened when the housing market collapsed in the fall of 2008, leaving stocks, property values and retirement plans at historic lows.  Yet all along, many experts had warned about the markets collapsing–as the market was skyrocketing– but the general consensus was that the market will only go higher, culminating in what former Fed Chief Alan Greenspan warned was dangerous and “irrational exuberance.”

To take advantage of market highs but minimize risk,  consider investing in an ETFs (exchange traded funds) which combine a group of stocks in a specific sector to mimic a particular index.  An ETF can be a low-cost strategy that gives you exposure to a particular area of the market.  It offers diversification so if one position loses value, the value of the ETF doesn’t necessarily plummet.  In addition to ETFs, many investors appreciate the simplicity and diversification of a traditional balanced mutual fund that leverages equity exposure for higher returns along with consistent returns from government bonds and cash.

3. Acquire an entourage

Have you ever seen photos of Kim or Kanye walking to their car or through the security line at the airport?  True, they are usually mobbed by the paparazzi but look closely and you’ll see a gaggle of handlers behind them.  Baby K is sure to have her share of men-and-ladies in waiting to handle her every whims–and when it comes to investing, so should you!

A financial entourage can include anyone from a financial advisor to an investment club that meets every month, to an online community, a group of friends or an investment buddy, to a collection of trusted websites and television shows that helps you keep up on the markets and the economy.  To find a fee-only financial advisor, try http://www.napfa.org to find someone in your area.  For advisors who work on commission, check out http://www.fpanet.org.  Many websites are available to help you learn about and undertsand the markets like http://www.bloomberg.com,www.Wealthwatch.com, http://www.yahoofinance.com and more.

4. Don’t be afraid to go international

I’ve read that when Kim went into labor, Kanye was just stepping off a plane from Switzerland.  In fact, many credible sources (ummm…US Magazine) reported that Kanye was abroad during much of Kim’s pregnancy, and that after the  birth of the baby the couple plan to move to France.  Whether for more privacy or for the fine wine and decent coffee, the couple may decide that living in Europe provides a better lifestyle for their family.

While world markets have all experienced their share of ups and downs over the past few years, many investors have seen strong returns by diversifying their portfolio and including international and emerging market funds.  Countries like Brazil, India, China and Russia have seen positive earnings in their markets, and emerging markets like Indonesia, the Middle East and Chile are  also benefiting from cheap labor and strong demand.  While an overall portfolio of international and emerging market stocks may not be wise, consider adding exposure to overseas funds as a way to increase returns.  Most of the top fund companies like Vanguard, Fidelity, Franklin Templeton, etc. offer international and emerging market funds so check out how the funds rate on http://www.morningstar.com before investing.

5. Don’t always believe what you hear

It goes without saying that Kanye West talks a big game.  In recent interviews and song lyrics, he has compared himself to God, Andy Warhol and Steve Jobs, among others and made references to his superior artistic and leadership abilities.  The guy is anything but humble and whether his proclamations are accurate, that’s up for debate.  That’s why, as Baby K grows up, she must use good judgement and scrutiny when taking advice from everyone around her.  While her father may announce that he is the king of rap or whatever, and her mother brightly responds with, “That’s AMAZING!” Baby K would be wise to keep critical eyes and ears open and continue searching for the truth.

As investors, we’re inundated on a daily basis with information, facts, opinions, analyses and rhetoric on the market, how it’s doing and where it’s going.  At the office water cooler, there’s always that guy that goes on about his friend’s “genius” start-up.  Turn on the TV at dinnertime and you have red-faced Jim Cramer hollering at a caller from Long Island about why he thinks Home Depot stock is sinking.  Turn to MSNBC and you’ll watch a White House spokesperson clumsily attempting to explain the benefits of the health care legislation.  Change to FOX News and you’ll likely hear a doomsday scenario of where the market –and basically the world–is headed.

All this information can have negative effects on investing if you let it.  On the other hand, tuning into these shows once in a while can provide perspective as long as you continue to work with a financial advisor, pay attention to investment accounts and how they’re moving, maintain a daily routine of reading about the markets (like reading a financial article per day) and discussing your thoughts with your advisor or trusted investment buddy.  It’s important not to give in to the confusion and make investing decisions based on that.

Welcome to the world, Baby K!  May your future–and ours– be filled with bling!

High Drama In The Weight Room

By Lena Rizkallah, Money Moxie

Like many adults with time and a little money on their hands, I have a gym membership.  I discovered the gym back in college–and over the years, I have tried almost everything, from step aerobics to jazzercise, cardio machines and free weights, to yoga and “barre burn”–but I’m not naturally athletic.  When I was younger, my hard-working immigrant parents had the best intentions for me, but instead of enrolling me in soccer or volleyball where I could practice drills and build stamina, improve my social skills and maybe stop eating lunch by myself, they thought hours practicing the piano, flute and French in complete solitude would prepare me for life.  The end result was an awkward childhood.  So when it comes to sports, I have no skills, grace or eye-hand coordination.  I was reminded of this most recently when my temperamental Argentinian tennis coach stopped calling me back to schedule our lessons.

Tennis lessons always ended in tears for the both of us!

Tennis lessons always ended in tears for the both of us!

Thus, the gym has been the place for me to get some exercise, as long as I don’t have to serve, kick or dribble a ball.

For a long time, the one area of the gym that I felt was off-limits to me was the weight room, the area designated for free weights; this is the space that usually takes up an entire mirrored wall in the gym and is lined with weights from five to 500 pounds with benches facing the wall.  I’d always avoided that area because I thought I didn’t belong there.  For one thing, it was all men that hung out there, most of them with muscles up to their ears.  For another thing, the noises coming from the weight room would scare away Dexter Morgan.  Grown men stood in front of the mirrors or lay on benches, lifting huge weights.  Loud grunts, shouts and moans could often be heard, usually followed by someone dramatically dropping the weights to the floor.  I wanted no part of that action.

But eventually I joined a gym that kept all the free weights in the weight room, even my measly 7.5 pound hand weights, so I was forced to meander over to the weight area to retrieve them. At first, I was pretty intimidated by the meaty crowd at the weights.  I apologized a lot, thanked the men working out there, would move to the furthest bench to give them room.  Once someone dropped a towel and I scampered over to get it like the Hunchback of Notre Dame, handing the murky wet towel to a bald, tattooed, pierced ‘roid-head.  “You dropped your towel, sir.”

Am I in your way, sir?

Am I in your way, sir?

Soon, however, I noticed other women using the weight area, standing in front of the mirrors doing their reps, and they seemed right at home.  It gave me more confidence to stick around and do my reps, and it dawned on me how different men and women can be when we work out.  I’m not saying all men holler like they’re being waterboarded when they lift weights, but I’ve witnessed a lot of veins popping, red faces and childbirth grunts over there (and not from the women!).  On the other hand, most women lifting weights handle the stress quietly; I guess some of us think that if you’re grunting and straining from lifting weights, maybe it’s time to check your ego and lighten your weights.

Over time I’ve become a lot more comfortable in the weight room.  Nowadays, I stand my ground when someone eyes the bench I’m using, and I stake out my space in front of the mirrors.  Who cares if I’m just lifting 7 pounds next to a guy lifting 150??  And the weight-lifting screams?  I rarely hear them anymore.

This experience got me thinking about the differences between men and women in investing.  For years, men have dominated finance and investing, presumably because they were the major breadwinners, they spent the most time in the workplace and were more likely to be socialized to be responsible for managing the family finances.  Over the past few decades, however, as more women entered the workplace and climbed the corporate ladder, there has been a shift.  Nowadays, most women are as likely to invest as men, and are often better savers than men.

How Do We Invest?

How can we learn from each other?

How can we learn from each other?

– When it comes to investing, women tend to be conservative investors and prefer a buy-and-hold strategy rather than taking a more active approach to their portfolios.  Women will invest in a carefully selected portfolio of investments based on their saving and investing goals, and then make minor changes going forward. Men, on the other hand, have a stronger stomach for risk and are more likely to move in and out of various stock positions; thus they are more likely than women to buy at market highs and sell low, often miscalculating the market.  In fact, a recent Vanguard study showed that men that make frequent changes to their portfolios will miss out and often see returns almost 1% less than their female counterparts.

– Men tend to trade more, while women prefer to sit tight–but there are many factors for this and it’s not just about knowledge or confidence in the markets. Experts believe that the investing tendencies of men and women are partially biological. A study by John Coates, a former Wall Street trader, revealed that what triggers risk-taking behavior in men is not more knowledge or skill in investing but actually high levels of certain hormones like testosterone and cortisol.  This elevated amount of testosterone encourages men to take risks mainly for the rush of it.  Women, historically the mothers and caregivers, on the other hand, focus on protection and sustenance and these characteristics also extend to investing habits.

Trader talk

Trader talk

– Men are more likely to seek advice for their finances, using newspaper articles, the internet and are more likely to hire a financial advisor.  Women on the other hand are less likely to have  financial advisor.  Many may seek professional advice with a spouse but otherwise, most women more on friends and family to help them with their finances. And when they do have a financial advisor, studies reveal that many women are dissatisfied with their advisor.

– Confidence is an issue.  A recent Prudential study on how men and women invest, it revealed that men tend to be more confident when managing their finances than women, are more comfortable with different types of investments and strategies and make their own investment decisions.  Women, on the other hand, are less aware of investment strategies and feel less confident.  As a result, many women tend to make conservative choices and seek FDIC-backed investments–safety without the higher yields of the market.

Speaking The Same Language; How Can Men and Women Learn From Each Other?

– Because women live an average of 5-7 years longer than men do, longevity is a factor and retirement income must last.  Consider stocks and alternative investments to provide more exposure to the market.   In addition, while women statistically save more than men do, they spend less time in the workforce, and often leave work entirely or take many years off during their peak earning years (ages 35-50) to raise children and/or care for ageing parents.  Men are more likely to invest in equities but should think twice before moving positions.

Diversification is key.  Investing the bulk of your money in bonds or in company stock may seem safe but could be detrimental in the long run; the investment may plummet in value or fail to keep up with inflation.  When you hold a diversified portfolio that includes a mix of cash, bonds, equities and alternative investments, you’ll have  a better chance to achieve higher returns in the portfolio.

– Studies show that men learn independently about finances while women prefer to learn in groups. Education is crucial!  Both men and women could benefit from mixing it up once in a while.  Make sure you that you are using the right online tools and webinars, attending seminars and face-to-face meetings and getting the big picture from the experts.  While the internet is a great source of knowledge for financial literacy and investing, attending occasional live seminars give you the chance to ask questions and hear questions and answers from the group.  Be sure that the “expert” is a true expert and is focused on providing financial education rather then selling you products.

Have the right mixture of curiosity and confidence.  If you don’t already, challenge yourself to learn more about the financial markets by reading one article a day on Bloomberg.com or yahoofinance.com, and watch 10 minutes a day of market news.  Talk to friends and family about their investing behavior, impressions on the market or the economy.  The more we’re engaged in the markets, the more we learn and the more confidence we attain as a result.  However, while confidence is good, overconfidence leads to risky behavior, erratic movements and poor decision-making so remember to think twice and do a little extra research before taking the plunge.

Find the right financial advisor and meet (by telephone or in person) on a quarterly basis.  Make sure you’re  in touch with your advisor, ask questions, check on your  own investments and make changes when appropriate, and if they aren’t hustling for your business it’s time to find a new advisor.

The “Sequeezter”: How the Coming Budget Cuts May Affect You

A recent USA Today poll revealed that about 25% of Americans know little to nothing about the sequester–the mandatory across-the-board budget cuts set to be instituted on March 1 (that’s next week by the way).  This is alarming since these budget cuts could affect us on a daily basis and could make life pretty inconvenient.  Probably because of this collective cluelessness, another Pew/USA Today poll revealed that if nothing is done to resolve the sequester issue, about half of Americans will put the blame on Congressional Republicans and about 30% will blame the Obama Administration.  And so, the finger-pointing continues in yet another politican-created crisis.

How did we get ourselves into this mess?

The sequester resulted from the debt ceiling debacle in the summer of 2011.  Congress was debating whether to raise the debt ceiling and had a deadline of August 1st to come up with an agreement along with a deficit reduction plan.  A “supercommittee” of politicians from both parties worked together to figure out mutually beneficial tax increases and budget cuts. Not surprisingly, the committee failed to agree on final terms; what they did come up with was a plan to decide to plan to hopefully-maybe-fingers-crossed come up with some deficit reduction options sometime in the inter-galactic future. 

This mandate was part of the Budget Control Act of 2011, and also included the sequestration language; that is, failure to agree on deficit-reducing legislation would automatically trigger the sequester, which are automatic cuts that would affect every discretionary area of the federal budget.

When the Budget Control Act was drafted, no one thought Congress would be so irresponsible as to allow these budget cuts to be triggered.  But like the 2011 debt ceiling debacle that lasted over 6 months and culminated in deadline drama, and the recent fiscal cliff thriller that ended with “cliff”-hanging legislation on New Years Eve, it looks like Congress is going to ride this one out too.

How will the sequester affect government budgets & the economy?

The sequester calls for $1.2 trillion in deficit reducing budget cuts over ten years, about $85 billion in cuts for this year alone.  All areas of discretionary government spending will be affected, including social services, defense, education and housing.  The areas not affected by the sequester are funding Social Security, Medicare, Veterans Benefits, etc.

Economists and politicians fear that implementing the sequester will have negative effects on our economy. Some economists believe that these austerity measures would reduce economic growth by .5% –so that the US economy would grow at 1.5% annually instead of the 2% growth that was forecasted (already well below the healthy 3% minimum growth we’ve seen in past years).  The cuts are also expected to increase the unemployment rate, expected to hover around 7.9% by end of 2013.

Recently, Erskine Bowles, former Clinton White House Chief of Staff and more recently, a co-author of a famous deficit reduction proposal that was commissioned by Obama but that went nowhere (the Bowles-Simpson deficit reduction plan), was quoted regarding the spending cuts from the sequester:

“They are dumb and they are stupid, stupid, stupid. They are inane. There’s no business in the country that makes cuts across the board. You go in there and you try to cut those things that have the least adverse effect on productivity.

“Second, they’re cutting those areas where we actually need to invest: education, infrastructure, research.

“And third, they don’t make any cuts in those things that are growing faster than the economy. And that’s stupid, stupid, stupid.”

What Do The Cuts Possibly Mean For Us?

While the cuts have not yet been instituted, it’s possible that government-funded programs, agencies, infrastructure initiatives, etc. will be curbed in the next few months.  Here are some likely outcomes:

–  Government and military civilian worker furloughs are likely.

– National parks, monuments, camp sites, forests, etc. could be closed or reduce hours of operation and services.  Libraries may also reduce hours, services and close branches.

– Fewer teachers as well as cuts to education funding and grants; access to after-school and Head Start programs may be reduced or eliminated.

– Housing and mortgage assistance could be affected as cuts may affect HUD (that provides housing for lower-income Americans) and government-funded mortagage assistance programs.

– Less spending for research and programs for National Institutes of Health (NIH), Center for Disease Control (think West Nile, bird flu, etc), Food & Drug Administration (the return of cosmetic testing on kittens???  NO!), etc.

– Fewer government workers like the TSA (longer lines at airport security!!!), border control agents, immigration and drug enforcement agents, etc.  IRS agents may also see reduced hours or cuts.

– Budget-slashing at the Justice Department could lead to fewer investigations of wrong-doing and more abusive practices slipping through the cracks.  Budget cuts to other government-funded regulatory agencies like the SEC, FDIC, etc. could result in less oversight and possibly more abuses in the financial industry.

– The sequester could hurt Hurricane Sandy government-funded recovery efforts.

– Cuts to defense resulting in less training for deployment readiness, cuts to equipment and weapons maintenance, investment in weapons, etc.

– Major cuts to defense funding could result in decreased naval and Air Force operations.

The Sequester Squeeze

With a week left to go before the sequester kicks in, Congressional politicians have been busy doing what they do best: finger-pointing while on vacation.  The Republicans have been putting the responsibility on the Obama Administration, calling it the “Obama sequester” (even though the vast majority of Republicans voted for the Budget Control Act and the sequester in 2011.)  The Democrats have taken their turns at the blame-game, accusing the Republicans of dragging their feet and not caring whether the cuts kick  in.

Either way, it looks like we’re in for a bit of austerity starting next week.  If so, now might be a good time to check out a ton of library books you don’t plan on returning and fudging on your taxes.  There may not be anyone on the other side to check up on you.

Hairy Therapy Remix

UPDATED POST FOR GOLDENGIRLFINANCE

I am your typical New Yorker.  Like many of my fellow city-men and women, I know how to hail a taxi without getting side-swiped. On escalators, I stand on the right and walk on the left.  I let people get off the train before getting on.  I give tourists succinct, exact directions – even offer restaurant recommendations – but don’t linger for small-talk.

However, as a New Yorker, I am an enigma.  That’s because I do not have a therapist.

It seems that every friend, colleague, acquaintance or person behind me in line at the drugstore has at least one therapist and sees that person pretty regularly. It’s not uncommon for a friend to start a conversation with, “Dr. Tony says my journaling is really helping me work through my issues.”  Or interrupt a dinner party to proclaim, “My therapist thinks it’s because my father never came to any of my piano recitals.” Or grab the phone in a panic and shriek, “I need to call my shrink!” after a night of debauchery.

I know that going to therapy is good for one’s mental health and can actually help people learn to deal with anxiety, stress or depression.

Don't tell me, tell your therapist!

Don’t tell me, tell your therapist!

However, as a woman of Middle Eastern descent, I prefer to spend my therapy money on more pressing matters – specifically on laser hair removal, electrolysis and waxing.  No therapist will help me get over the memory of me as a little girl in the fourth grade, sitting in my reading circle surrounded by my classmates. Compared to the cute, skinny blond girls in their bobby socks and tennis skirts, I was a thick hairy rectangle that smelled like hummus, sporting tube socks up to my thighs to cover up my hairy legs.  That’s a memory that is burned into my psyche and for that reason, I prefer to get rid of the evil that caused my anxiety, rather than go sit with someone and have a chat about it.

But everyone needs therapy – or even self-reflection – in order to take responsibility and move forward.

Similarly in personal finance, it’s important to do a little self-reflecting.  Especially now, at the beginning of a new year and as we gather our financial paperwork for tax time, it’s helpful to examine our finances, be honest about our spending and saving habits, and set some new goals to change bad behavior.

Here are some tips for planning a more financially rewarding 2013…

1. Before setting impossible goals for 2013, be thoughtful and thorough. Review your tax paperwork and last year’s budget.  Be painfully honest with yourself and ask, am I happy with the amount of money I made last year? Did I reach any of the financial goals I set for myself last year?  How or why not?  By actively taking the first step – looking honesty and critically at last year’s finances and identifying your satisfaction level with it – you can begin to set the right goals for next year.

2. Figure out your debt and make a plan to deal with it.  Add up your total annual expenses plus any additional debt; what is the ratio of expenses to income?  Were you able to manage debt and also save last year?  If not, review your spending/budget from last year and find three things you can cut out in order to reduce spending, manage debt and/or save.  Allocate the savings to a specific debt or to your savings in order to reach a particular goal.  Be specific.

3. Don’t have a 2013 budget yet?  SET ONE UP NOW!  Use Mint.com to set up a budget online, create an excel spreadsheet to track expenses or just write it down old-school.  Find a way to track your spending and then do it.   Manage debt by consolidating into a low-interest rate credit card and make sure you are paying more than the monthly minimum if you can.  Budget and save up for a six-month emergency cushion, even if that means putting $50 a week into your savings account.

4. Grow your money.  If you have a savings account and an emergency fund, consider taking a chunk and investing in short-term CDs or mutual funds or ETFs.  These can be low-risk options that can help you increase your savings instead of lingering in a low-interest savings account.  Also, make sure you are contributing to your company’s 401(k) and if your company doesn’t offer one, set up an IRA or a Roth.

5. Set a personal financial goal (that is also attainable) for 2013 and take the steps to get there.  Do you want to increase savings by 20%?  Do you want to get rid of all credit card debt?  Are you saving for a new home?  If that means taking an additional shift at work or getting a part-time job, do it. Or, are you ready to invest $15,000?  Check out some of the top online brokerage sites like Fidelity, Scottrade, or Etrade that also offer research and investing tools so you can do it yourself.

And if you’re ready to seek professional help, visit FPAnet.org to find an advisor in your area or NAPFA.org for fee-only advisors. Like a therapist, a financial advisor can help you identify bad habits, set priorities and help you reach your goals.  But they probably can’t help resolve any lingering daddy issues.

The Bond Bubble Explained

Thanks Tony Conte of Conte Wealth Advisors for this clear explanation of the bond bubble!

The past decade has been one marked by quietly inflating bubbles which unexpectedly burst leaving, financial markets reeling, diminishing opportunities for profit, and leaving investors’ life savings in unsettling flux due to volatile securities prices.  The burst and deflation of the technology bubble in 2000 led markets spiraling downward and, exacerbated by the terrorist attacks of 2001, erased a stunning $5 trillion of market value in just two harrowing years. More recently, the burst of the housing bubble helped to weaken markets and played an integral role in the evaporation of $16.4 trillion in U.S. household net worth from spring of 2007 to the market trough in mid-March 2009.

Bubble Bath

With the ever-imminent threat of total hysteria over daily market movements (thanks in no small part to the immediacy of reporting on 24 hour news stations drumming up advertising revenue through the creation of catastrophes, each complete with its own theme song), let’s get a little perspective before we whip ourselves into a frenzy in search of the next big bubble poised to burst.  A “bubble” in financial markets is simply the trading of an asset or security at unreasonably high valuations (eg. over priced stocks) followed by a sudden devaluation of the security, or a crash in prices.  Bubbles are as old as currency and countless numbers of them in varying magnitudes have risen and fallen over hundreds of years.

Some bubbles are fun, others not so much.

Some bubbles are fun, others not so much.

Tiptoe Through The Tulips

Ever heard of the Tulip Bubble?  That’s right, there once was a financial crisis surrounding the price of the popular, and seemingly innocuous flower which must complete a 5 to 7 year gestational period before being harvested and sold as the tulip that we’ve all come to know and love. A Dutch craze for the flower brought from Turkey and Holland led to an insurmountable demand while supplies dwindled due to the many years required for the plant to properly flower and replenish supplies.  At the height of this tulip-mania, some Dutch homeowners were trading their properties for tulips, which saw a 20 fold increase in value in just a month’s time.  The clearly unsustainable valuations collapsed over a period of weeks decimating the value of some tulips to merely one hundredth of their previous prices.  This was in 1636.

The Tulip Bubble

The Tulip Bubble

You see, bubbles are not new and are certainly nothing to panic about, but rather they are something to be wary of and managed with care and caution.

Madge, You’re Soaking In It

The funny thing about bubbles is that we often don’t seem to recognize the formation and growth of a bubble until we suffer the detriment of its decline.  The challenge in predicting even the existence of a bubble can sometimes be overcome with a reconciliation of bare facts.  Let’s lay them out here and see what you think.

In the first three quarters of 2012, roughly $220 billion had flooded into bond mutual funds. Going back just a few years to the collapse of Lehman Brothers in 2008, over that period of roughly four years investors deployed a staggering $900 billion in cash to bond mutual funds.  Many investors look to bonds for safety of principal and stability (relative to equities and some other assets), and fear of investing in more volatile assets seems to have encouraged an exponentially increasing interest in holding bonds and bond mutual funds. What many investors may not realize is that you can, in fact, lose money investing in bonds.

When the price of a bond goes up, it’s yield (the cumulative return of the instrument accounting for not only the bond’s interest rate, but also the price you had paid to purchase the bond) goes down. Could investors be mistaking the rising valuations of bond funds over the past few years as evidence of their supposed safety? The converse is also true: when interest rates finally begin to increase, the value of outstanding bonds is expected to decrease.  The all-time record high prime rate in the United States was 21.50% onDecember 19th, 1980. This means that if you were purchasing a bond around that time, you were lending your money to a company or entity in exchange for a bond certificate which promised that the entity would pay you interest (commensurate with the insolvency risk of the company issuing the bond) around that incredibly high interest rate.

In hitches and starts over the ensuing decades, at least until December 12, 2012, that prime rate has decreased to its current (as of this writing) standing at 3.25%.  Knowing what we know about the effect that interest rates have on the value of bonds in the secondary markets, one might deduce that the 30 year bull run on bonds will have to come to an end if rates are ever expected to go up.  To give you a sense of what this may mean to US Treasury Bond investors, consider this: A 10 year treasury bond issued at a 2.82% interest rate could see a 42% loss in value from a mere 3% rise in interest rates. Meaning, if you’d held $100,000 in these bonds prior to the rise in rates, you would only be able to sell those bonds for $58,000 in the secondary market after the 3% rise.

Stressed!

Stressed!

What To Do?

At first glance, the bond bubble situation may seem dire, but the informed investor may find him/herself well positioned to take advantage of this seeming inevitability.  True, investors have often bought bonds in a flight to assumed safety; however, in times when even the seemingly “safe” investments threaten to veer into a range of volatility, what is an investor to do?  We counsel some of our clients to consider avoiding bond mutual funds in favor of purchasing the individual bonds themselves with an intention to hold those bonds until their maturity.

Fluctuations in the value of a bond that an investor had intended to hold until maturity should minimally, if at all, affect

the investor’s long term expectations of yield. Most bonds are redeemed at a flat $1,000.00 per bond.  If a bond price fluctuates to a value of $900, $800, $700 or even lower, it could still eventually achieve redemption at “par” (that $1,000.00 value for most bonds).  This remains only one of many strategies to utilize this asset class with full understanding of the possibility of a coming storm and the ensuing rude awakening for complacent bond fund holders.

Bubbles come and go, of course, but with proper and prudent management and investment guidance, the average investor still can stand to gain from these perceived threats to our economy.

Anthony M. Conte, MSFS, CFP ® Managing Partner Conte Wealth Advisors, LLC 2009 Market Street Camp Hill, PA 17011 Phone: (717) 975-8800 Fax: (717) 975-0646 tony.conte@contewealthadvisors.com Registered Representative Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Conte Wealth Advisors, LLC are not affiliated.

Measure Your Financial Body Fat

It’s mid-January; do you know where your New Years Resolutions went?

Hard to believe that the holidays were just 2 weeks ago.  Usually by mid-January, the mild depression caused by lack of sunlight that grips most of us in the Northeast is in full effect.  This year it’s that plus the flu.  No wonder, then, that many of us have discarded our New Years Resolutions like some forgotten grocery list dropped on the floor of the Times Square subway.

Picking up the pieces of our New Years Resolutions

Picking up the pieces of our New Years Resolutions

But even if you got sidelined by the flu and haven’t been able to make it into the gym yet, or maybe went to Macy’s with the $100 gift card you got for Christmas and accidentally left with a couple of pairs of boots, three cable-knit sweaters, a blender and a European-style mattress, don’t let a little bad behavior stop you from making good on the promises you made to yourself.

One of the top three resolutions has to do with money.  People vow to get out of debt, save more, or start investing.  Setting financial goals is always top of mind for most people.  And like the other top resolutions–losing weight, becoming a “better person (whatever that means) or volunteering (good luck with that!)–nothing will be achieved unless you set goals, make a plan and work towards those goals.

But before you go transferring your entire savings account into your 401k, or opening an online brokerage account and depositing last week’s unemployment check, or saving up for a Bloomberg station so you can start day-trading…chillax.  Think of the old adage “you don’t know where you’re going ’til you know where you’ve been.”  In other words, determining your financial foundation first helps you understand yourself better and your attitude towards money which in turn will help you set–and achieve–better financial goals.

Recently, I joined a new gym.  I’d been going to the good ol’ run-of-the-mill gym for years and was tired of the broken machines, humid conditions and questionable stains embedded on the “clean” towels.  This new gym is beautiful, shiny, sleek; it’s the gym that the one-percenters go to, and even though I am not currently a one-percenter, this gym gives me access to this special status, if only for 3-5 times a week.

The one-percenters on treadmills

The one-percenters on treadmills

With my new gym membership , I’m entitled to a couple free personal training sessions.  I recently met “Tareeq,” a tall Dominican glass of water who approached me in the gym and pretended to flirt with me so that I would make an appointment with him (yes, that’s what they do, those wily personal trainers; they flirt with you and flash smiles in hopes that you will hire them as a trainer!  And of course it works.)

Last week was my first session where we basically took my measurements, did a fitness test and talked about my goals…basically a humiliating start to my Friday.  Funny how I started out the session pretty optimistic, cracking jokes, telling Tareeq that my weight “ain’t nothin’ but a number, just like my age, know what I mean?  Haha!” And then by the end of the session, after I had ran, walked a steep incline, attempted push-ups, sit-ups, gotten my fat pinched in various parts of my body and then stepped onto a scale–I was depressed and quiet.  My goals had changed.  I had walked into the session thinking, ‘I feel good, just want to tone up my lower body, and have fun working out’ but after I had evaluated my present state of health and fitness, I wanted more.  I wanted to lose weight, strengthen my core, lower my blood pressure, burn more fat during a workout, fix the sag situation in various parts of my body.

When it comes to finance, just like in fitness, we often make lofty goals without truly evaluating our situation and our attitudes–and as a result fall short of our goals.  By establishing a financial foundation first, you get a better idea of your good and bad habits, and the areas in your finances that need immediate attention; this leads to setting the right goals and the steps to tackle these issues.

This first step in setting a financial foundations is to understand yourself.

1. Be mindful.  In yoga, we’re aways reminded to be mindful of things.  “Be mindful of your breath.” “Be mindful of thoughts for they turn into actions which turns into the truth yadda yadda.” “Be mindful that you don’t scrunch your neck in downward dog.”

I am very mindful of this beautiful sunset.

I am very mindful of this beautiful sunset.

These are small reminders that can be extremely important to the practice of yoga and to receiving the full benefits of a pose.  When it comes to money, we should also be mindful of our actions and reactions to money-related matters.  How do you feel when you get your credit card bill in the mail? Do you instantly cringe and throw the bill in a  desk drawer, only to be found sometime in mid-August?  Or do you react in the opposite way, panicked by a fear of debt, spend your whole paycheck on bills and leave yourself with a twenty-dollar bill for the rest of the month?

What is your current state of debt?  What is your monthly income?  What are your fixed expenses that you need to live on per month?  Find these numbers and memorize them.

2. Change your attitude.  Many people approach money issues with a sense of fear.  I’ve heard people complain that they don’t understand finance, it’s complicated or boring.  Others don’t want to delve too far into their finances for fear that they’ll discover how majorly dramatically horrifically in debt they are (which is probably not the case).  Still others may think they don’t have anything to worry about because they’re too young, don’t earn enough money, or have someone else make money and investing decisions for them, etc.

First of all, take a good hard look in the mirror and acknowledge how you feel about money, debt, retirement planning and investing.  Are you afraid to ask questions at the bank, or talk to a financial advisor because you feel like you don’t make enough for someone to care about your questions or accounts, or because you don’t want them to think you’re stupid or because you don’t want them to sell you something?  My advice: walk into the bank like a gangster.  Act like you own the place.  Look at the bank advisors like they work for YOU.  I mean, they don’t, but if that’s what it takes to get you to change your attitude, tell yourself those lies!

Think of yourself as the Godfather and your financial advisor as your trusted Consigliere.

Think of yourself as the Godfather and your financial advisor as your trusted Consigliere.

The opposite of fear is confidence.  It is incredibly empowering when you can overcome your fear–or maybe even just ignore it or side-line it–in order to start a conversation with an advisor, ask questions and take control of your money (and not the other way around).

3. Create a process that works for you.  Let me start by saying that I hate math.  Anything that has to do with numbers–even the calculator on my Iphone–is extremely puzzling to me.  I am often stumped when someone asks me to times a number by 10.  So when it comes to establishing a budget and managing my finances I don’t use an Excel spreadsheet.  I like things spelled out, so I gravitate towards specialized programs like Mint.com, and I also like keeping good old-fashioned notes in a notebook (or on my Iphone).

Some couples use the envelope method to manage their household finances.  They stuff money into envelopes dedicated to certain parts of the household budget and anything left over from fixed expenses can be used for the variable expenses like entertainment, big purchase items or hair extensions.  I have a friend that lives and breathes Excel.  She uses Excel at work of course, to manage her household budget and bills but also to manage expenses on a group outing, for vacation expenses, even for shopping.

No one process works for every person; you have to find the method that is convenient, easy to use and something that you’ll stick to.  And then stick to it.

Establishing a financial foundation, like fitness, is a simple (sometimes painful) process that can lead to establishing the right goals.  Once you know “who” you are–with regard to your attitude, your fears and your habits towards money–you can set real goals based on that reality.

Your financial foundation can also be a great scare tactic that inspires you into action–kind of like what happened to me after my fitness test last week.  I was back at the gym every day this week, and even tried some exercises Tareeq showed me.  He would’ve been so proud if he saw me on that treadmill–but he was too busy flirting with a new member at the juice bar.

Give and Get

As we get closer to the end of the year, now is the time to make last-minute tax strategies.  Believe it or not, one of the most commonly used “tax strategies” is making charitable donations.  Depending on your tax bracket, you can get a hefty tax deduction for the value of the cash, stock or gift that you make to a qualified charity. You can confirm whether a charity is “qualified” by visiting http://www.give.org or http://www.charitynavigator.org.

For more tips, check out my updated post below and found at http://www.MosaicConsultingOnline.com

How To Have a Scroogeless Holiday–5 Charitable Giving Strategies

So it’s the week after Thanksgiving and the next few weeks will fly by faster than any other time of the year.  It seems that as soon as Thanksgiving comes and goes, we all start racing around, finishing up work projects, planning for next year, attending holiday parties, tree-trimming gatherings, department lunches, mailing holiday cards and trudging through the mall for holiday shopping.

And whether it’s for a cause or organization we believe in, or solely for tax purposes, this is also the time when many of us make our first and/or final charitable gifts to charity for the year. Here are five smart charitable giving strategies to keep in mind:

1. Clean out your closets! And your kids’ closets, your spouse’s closets and maybe after you pull the Christmas paraphanalia out of the garage, consider reorganizing that space as well. At this time of year, charitable organizations like Goodwill, the Salvation Army and community shelters need old coats, sweaters, jeans, boots and other items of clothing.  Just make sure that when you drop off the bags of gently used shoes and clothes, that you get a receipt from the charity with the name of the organization, a description of the items and rough estimate of their value.

Many of these organizations will also happily accept furnitire and household items, and will sometimes even pick up the items.  The same documentation rules above apply to furniture but items over $500 will require an assessment and filing IRS form 8283.

2. Stock-it to them! If you are one of the fortunate few with highly appreciated stock in your portfolio, consider making a gift of that appreciated stock to the charity instead of a gift of cash.  In that way, you’ll likely make a larger contribution with stock than with cash and avoid paying capital gains tax if you had sold the stock.

Keep in mind that the deduction you receive is based on the type of asset or gift you transfer to the charity.  In general, you can deduct a gift of cash up to 50% of your income.  For a gift of property and capital gains asset, you can deduct up to 30% and 20% respectively.  Any unused portion of the deduction not taken may be carried over into the following years up to five years.

3.  Sometimes cash is king! Although charitable giving is reported to be slightly up for the first nine months of 2011, giving in general is significantly down from prior years and charities are still struggling to stay alive.  In many cases, the communities they serve deserately need their services.  If you are willing and able, it’s a great time to offer cash to your favorite charity.  Most charities accept gifts made in cash, by check, credit card or wire transfer.  Just be sure to get a receipt from the charity for the cash, or keep your credit card statement, bank record or other receipt as documentation.

4.  If you haven’t already, now is the time to make a charitable donation to the Sandy relief efforts.  Even though it’s already been 4 weeks since the storm hit the Northeast, many communities in NY and NJ are still suffering and in desperate need of support.  Are you short on cash but rich with personal and sick days at work? The IRS and Treasury recently released guidelines that allow employees to give up paid leave to make a cash donation to a favorite charity.  The employee does not receive a charitable deduction, but the value won’t be included as taxable income either.

5.  Time is money but it’s not a write-off! It’s cool to volunteer but remember that you can’t claim your time as a charitable gift.  However, you can deduct all your out-of-pocket expenses, including clothes, mileage, meals and other expenses incurred while volunteering.  So although you can’t claim the time you spent building homes for Habitat for Humanity, you can deduct your cool work outfit and supplies.  Just make sure you kept your receipts.

Especially in tough economic times, many people might find it more difficult to give to charities.  But charitable giving offers significant tax benefits and it’s a great way to support your community.  Using some of all of the above strategies, gifting doesn’t have to hurt your wallet either!

Hurricane Sandy Aftermath: 7 Tax Tips For Donations & Volunteers

Last week, Hurricane Sandy passed through the northeast, ravaging towns, homes and shorelines.  The cleanup process in the damaged areas has already begun, but there is much work to do.  There has been an amazing response to the disaster and many people are donating money, clothing, food and supplies as well as volunteering to cook for people living in the shelters, helping to gut and clear homes that were damaged by the storm, delivering supplies, cleaning  up neighborhoods, sorting donations and more.

Marshland in Staten Island post-Sandy

If you have or are planning to donate money or clothing/food to a charity or if you want to volunteer, here are some tax tips to keep in mind:

1. Remember that you can’t get a tax deduction for the time spent volunteering (i.e.  if you volunteer for eight hours, there is no hourly rate that you can claim as a deduction).  HOWEVER,

2. You can deduct your expenses for transportation to and from the volunteer site, including travel costs and lodging.  Examples could be deduction for cost of metro card  or mileage for driving (at 14 cents a mile).

3. You can also claim meals the day of volunteering as well as special clothing you might have purchased in order to volunteer.  In the damaged areas in NY and NJ, many volunteers are asked to bring their own shovels, work gloves, masks and other special clothes and equipment needed for cleanup; the cost of those items will likely be deductible so hold on to those receipts, as well as the receipt for the Subway meal you picked up for lunch.

4. If your expenses exceed $250, you must get a receipt from the charity indicating what was done and what will be claimed.

5. To claim a deduction based on making a cash donation, you are allowed to deduct the total amount up to 50 % of your annual gross income (AGI).  Make sure that when you are donating cash to charity that you verify the charitable organization.  You can check out whether a charity is legit by visiting www.give.org.

6. If you are donating clothing, blankets, shoes, supplies, etc. to a charity, you can claim the current market value of the items you donated.  Make sure to get a receipt from the charity and list the items and the approximate dollar value for your records.

7.  In addition, in the wake of Hurricane Sandy, the IRS and Treasury Department have just released a special relief program for volunteers.  Employees may donate their paid leave (ie. sick days, personal days and vacation) to a qualified charitable organization in exchange for an employer cash donation.  If the employer chooses to adopt such a program, the value of the cash donation or gift will not be counted as gross income and therefore not taxable to the employee.  However, the employee will not be able to claim a tax deduction.  Similar emergency provisions were made after Hurricane Katrina and the 9/11 attacks.  For more information, refer to IRS Notice 2012-69.

This post is for informational purposes only.  The information herein should not be relied on for financial, legal or tax advice.  Please consult with a tax planning professional for further information.