Simple Steps to Better Your Financial Situation

The experts all agree. The first step in positioning your investment future is to get out of debt and establish a cash reserve. But, to some those words just do not resonate. After all, it is hard enough to think about making ends meet these days, much less saving three to six months of living expenses in a cash reserve.

I’m a people pleaser, and hate saying things that I know will anger folks, but if you’ll allow me…a little tough love for you here. You can either choose to curse your financial darkness or choose to find a way to light a candle. For those of you who want to move forward, here are some practical ways to begin your journey…

You Have to Start Somewhere

Pick a dollar amount to save per week. It can be an arbitrary amount like $10 or $20, but it needs to be two things: 1) Realistic….and 2) Sacrificial. It needs to be an amount to which you can realistically commit…no matter what. And, it needs to hurt a little. You need to learn how to sacrifice a little to save a lot.

Pay Yourself First

Go get your paycheck stub and take a look at the top columns that show deductions. Those represent money that you pay to the government and insurance companies, maybe even a charity. Folks, understand what those lines mean. They mean that those entities get paid first. You do not get a paycheck until after those deductions have been made. I invite you to add a line to your checks, only this deduction is for your future. Add your self to that list and deduct whatever amount you committed to in the first step before you deposit any money into your checking account.

Become Your Own CFO

Get to know your budget. You need to be able to rattle off how much you pay in bills and expenses as easy as you rattle off your child’s birthday. There are a million ways to do this from keeping a journal of every expense, to the tried and true envelope method. I took the advise of all of the self help guru’s out there and sought out a good example on this. Borrowing what we used everyday in the business world, I created a six month rolling budget of projected expenses. In other words, I have an excel spreadsheet on my laptop that tells me how much money I will have at the end of January 2010. You might not need something that elaborate, but you do need something that will allow you to manage your cash flow in the event of both fixed and unanticipated expenses.

Windfalls…Thou Impetuous Tempest

Admittedly, this one takes a lot of discipline. Every windfall that you get, from gifts from grandparents to tax returns, sock them away. The temptation when you are working on getting ahead is to use that money to buy the things you have sacrificed during this commitment to getting out of debt and saving. Fight the temptation, or at the very least, only use a portion of it.

We Don’t Need no Stinking Banks!

Work toward becoming your own bank. I am not talking about financing your house here, but imagine the freedom of having enough saved in your cash reserves to be able to buy a piece of furniture or new stereo without having to borrow any money from a bank. The goal (for the super-advanced) is to loan yourself money, pay it back (in installments like a loan), and charge yourself interest.

The most important thing that you can do is choose to commit to your savings….and then go for it….you’ll be surprised at how much fun it can be.

A Renter's Market

This recession has taken its toll on nearly every sector of our economy, and it’s no secret that there are some really good deals out there if you are planning to buy a home. But, what if you rent? I took a look at that, and yes there are some deals to be had in the renters market if you know what you are doing,

The first thing that you need to do is study your market. You want to create leverage when you walk into the rental office. Shop around and find out what other rentals in the market are going for, and make a note of all comparable units that have lower rates than you are paying.

The web is your friend when it comes to this. Several sites can help you find these comp’s including craiglist.com and rentometer.com which are the two most popular sites. All that being said, if you google “comparing apartment rentals”, there are more sites than I have room to list that can help. I found a new one this morning that is in beta testing called zilpy.com. The bottom line is get thee to the internet and do some research.

The next thing that you need to know is that you have the leverage in this market. There is more supply than demand so remember the my mantra shop for the deal not for the need. If you are currently locked into a lease find a deal out there and go tell the salesperson in your rental office that you are going to take it if they do not lower your rent to match or beat it.

Finally, be brave enough to walk away from something that is not a deal. In the world of negotiation this is your ace-in-the-hole. But, you have to be disciplined enough to use it…chances are you’ll get more than you think possible as a result….

Tax Season Preview. Incomes that Could Sneak Up and Bite You.

Admittedly, we are a long way from when most of you are going to worry about filing your taxes, but I recently ran across some income sources that can sneak up and bite you on April 15^th…

Employer Bonuses and Service Awards

First of all, you need to know that extra compensation from your employer, like bonuses and service awards, are more than likely taxable. You probably do not have to worry about the bonuses because your employer will withhold the taxes for you, but you do need to be careful with service awards.

If you do receive a service award (ie jewelry) and it is worth more that $1000 then you need to check with your tax accountant. I realize that the idea of a service award in a nation staring at the prospect of double-digit unemployment is a wee bit laughable, but for anyone retiring this year, this could apply.

Another taxable event that is more likely in these economic conditions is that in lieu of (or in addition to) a severance when you are laid-off, you are allowed to keep a piece of equipment that was essential to your performance on the job (ie Laptop). Check with your former employer to see if they are covering the taxes on this transaction…otherwise you could have a nice little surprise this year at tax time.

The Beast That Swallows its Young

For those of you who’s employer paid for your continued education this year…you guessed it…that’s taxable income as well.

Unemployment Benefits

In the event that you were laid-off in 2009 and drew unemployment benefits, there are some special laws that are in your favor this year. Typically, your unemployment benefits are considered income and are therefore taxable, but due to the job market, the government is easing the rules for this year only. Read the fine print when you are preparing to file your tax returns, or get thee to a tax accountant.

Death and Taxes…even if it’s Jury Duty Pay!

Jury duty pay is also taxable compensation. If you get called to serve and are compensated then you have to report that money on your tax returns as well. On behalf of Uncle Sam I’d just like to say…You’re Welcome.

Bartering can Trigger a Taxable Event

A rising trend in this economy is bartering. More and more folks who have services to offer, but no income are turning to providing professional services in exchange for things like medical services and legal aid. According to the laborynth that is the United States Tax Code, the services you receive as a result of the barter might trigger a taxable event. Again, You're Welcome.

Gambling Doesn’t Pay. But, If It Does Then You Owe…Big Time!

Finally, if you strike it rich in the lottery or at a casino those winnings are taxable…and I mean big time! States and the Feds tax those two categories of income to fullest extent and you are forced to report the income before any winnings are distributed. So, before you take the money and run…bet on Uncle Sam raking a cool 50% of your winning off of the top.

The Bottom Line

When it comes to getting paid, the government is not all that concerned with how bad your situation was this year. So be careful and report honestly…and if you are frustrated, check out the next Fair Tax Rally in your town. It is not the sexiest campaign concept ever crafted, but it could be the transformational tax reform that brings this economy back to its former state. Just a thought.

2010's New Credit Card Rules and You

For better or for worse Congress will change the way that your credit card company treats you begginning next year.

We’ve had quite a few messages sent into our Dear Danny hotline about the credit card reform bill passed earlier this year. I did a little digging and here are some steps that credit card companies must comply with beginning January 1, 2010.

How the New Credit Card Laws will Effect You

Your due date will no longer be a moving target.

Currently some banks play a shell game with your due date. The new rules mandate that they set a due date and leave it. They will also be required to give you 21 days written notice of your due date, so no more phantom statements arriving at your home with an eminant due date.

They have to allow you to attack high interest lines of credit first.

Another way that this legislation attempts to help is that credit card companies will be forced to apply any payments above your minimum amount to lines with the highest interest rate. This will end another trick these wonderful people play…punishing you for having the audacity to try to pay them back in more quickly.

No more non-punitive interest rate hikes.

Also beginning in 2010, the credit card companies will generally no longer be allowed to jack your rate up on existing balances for no reason. According to the new rules, they can increase your rate on future purchases, but they can not touch your existing balance rate until you are at least 60 days late on a payment. Furthermore, they have to give you 45 days notice before any penalty rate can take effect.

They are not allowed to raise your rate in year 1.

Finally, your credit card company will not be able to change your rate at all within the first year of opening the account. After the first year they will be required to give you 45 days written notice before any changes are allowed.

Caveat Emptor!

With all of this being said, and in spite of the best intention of our Congress, our warning to all of you with cards is this:

The chaos theory reigns when it comes to banks and card issuers. Fees, interest and profit will find a way…after all…the government has never claimed that we the tax payers are too big to fail.

So watch your back and pay off those balances…asap.

Lesson from the Recession

Historians are already dubbing this economic era "The Great Recession". Once again drawing on the memory of the depression era of the 1920’s.

These historians are always going to have a difficult time convincing me that we are anywhere near that kind of pain and poverty. My push-back to them is simple. We define abject poverty these days as living in a home with two television and suffering the doldrums of basic cable.

That being said, there are some similarities in the lessons that we are being taught as consumers.

Lessons from the "Great Recession"

The first lesson from the "Great Recession" is that being cheap can be cool. Learning to exercise restraint in your spending habits is a discipline; one that keeps us aware of the fact that the shiny stuff on the shelves should never become the most important pursuit in our lives. Much like in the 20’s and 30’s Americans are turning away from that which Madison Avenue would convince us we can’t live without…and turning back to the things in life that were important from the beginning…you know…life…liberty…the pursuit of happiness for starters.

The next lesson is a big one, and it my sincerest hope that you never let go of it.

Budgeting is not an option. Your personal financial journey won’t get you any where without a map, and the first piece of that map is a monthly budget. Whether you make twenty thousand dollars or twenty million dollars per year, the first measure of any successful man or woman is the ability to document your goals. That starts with a budget. There is no way around it.

And, what about our homes?

Didn’t we get to the point where all of us took this key slice of the American dream completely for granted? Furthermore, didn’t we all get to the point where so-called financial experts convinced us that the equity in our home was a piggy bank? Equity is precious. It’s a trophy. It means that you own that much of something. Hold onto it for dear life.

Finally, the "Great Recession" reminds us that taking our eyes off of long term goals in order to pursue short term gain…

Well, go ask anyone who worked for Wachovia, AIG, Citigroup or Bank of America what they think about that.

The free market is cyclical. We are going to see an end to all of this pain, and that’s the good news. The bad news is that generations to come, much like those of us who know nothing of the pain of the 1920’s, will forget the lessons of this generation...unless we pass it on. Don’t hide from this pain. In the words of San Francisco 49ers Head Coach mike singletary…taste it…chew it…swallow it…and learn from it.

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