An Ongoing Educational Workshop for Women
That Meets The Second Tuesday of Every Month

Cash flow management is the lifeblood of your financial life and is essential to the health of your wealth. The concepts covered will help you adhere to your spending guidelines to provide you with better peace of mind.   

In particular, we will discuss:

• Creating a cash flow plan than in consistent with your values
• Assessing your satisfaction in key areas of your life 
• Prioritizing how your paycheck is spent.
• A multi-bucket approach to ensure you are staying on track.
  

Tuesday, February 14th, 2012
8:00am to 9:15am 

Irmo Chamber of Commerce
1248 Lake Murray Blvd.
Irmo, SC 29063

Attendance is limited to the first 10 RSVPs.
Reserve your space today at (803) 331-3721 or email laura@ascendfinancialplanning.com.

If you are like most Americans, you want to reduce your debt and expenses and increase your savings; but, with small pay raises and inflation, it seems there is never enough money left at the end of the month.  Here are some simple ideas to help you save big. In fact, these ideas could shave up to $9,000 off your budget.

1. Reevaluate your insurance:  A good rule of thumb is to look at competing quotes at least every three years.  Complacency could mean you have policies with less coverage that are perhaps more expensive  than comparable policies from other carriers.  I suggest getting quotes from a few captive agencies such as State Farm or Allstate but also working with a broker to see if he or she can provide you with an alternative quote.  A broker will work with several insurance agencies and provide you with more options and flexibility.

Increasing your deductibles from say $250 to $500 on your home and auto coverage can save you roughly 20% on your premiums or up to $400 for the typical household.

In addition, you can also save big on your life and disability.  If you are 55 and older it may be more cost effective for you (if you are healthy) to purchase individual coverage rather than from your group insurance through work.  The savings can be enormous as these group rates increase dramatically over time.

Total savings $400-$1,000+

2. Lose Your Landline- Many Americans are cutting the chord.  Cell phones are often easier to reach and since many people find them indispensable they are opting to forego the landline altogether for a savings of $500 on average.

Total savings up approximately $500

 3. Shop Smart:  There are excellent price comparison apps you can use with your smart phone to research prices for items before your buy.  A few extra minutes of your time can shave 10% or more off your major purchases.  Popular apps mentioned my PCmag.com include Amazon Price Check, Bar Code Scanner and FreePriceAlerts.com.  If you save 10% off your purchases of say $5,000 a year that is a savings of $500.

Total Savings: Up to $500.

 4. Switch to Generic Drugs- Research generics at your insurer’s website or on medicare.gov “Plan Finder”.

 The savings according to Kiplingers, even for your copays, could result in roughly $60/mo savings or over $700/yr.

5. Only Buy Groceries on Sale- Plan meals around sale items and buy in bulk when items are on sale and you can cut your grocery bill by 15%.

Total savings $1,350 assuming an average monthly bill of $750.

 6. Use a car buying service: Forget haggling for several hours.  Instead consider using Zag or Truecar.com.  Participating dealers pass on 100% of the cash incentives received from auto manufacturers.  You are provided with three of the lowest prices from your local dealers.   With deals often below invoice, potential savings can be significant.

Total savings an average of roughly $4,000 off the suggested retail price or roughly $900 annual savings for a 5 year car loan. Source: Kiplinger’s Personal Finance

7. Reduce Your Investment Costs using index funds and low cost managers:  American consumers bemoan a small dollar increase in debit charges or cable bills but they turn a blind eye to their investment costs.  The average active large cap mutual fund charges an expense ratio of over 1% yet only roughly 30% of active funds outperform their benchmark and when they do, the difference is often not enough to offset their higher costs.  Passive funds that invest in stocks that track an index are much cheaper.  You can build an investment portfolio for a fraction of what a portfolio of active mutual funds would cost.  Assuming you were able to decrease expense ratios by 1%,  it would result in a savings of $2,000 a year and that is then compounded over time.

Many investors rely on high priced advisors that charge well over 1% on assets managed in addition to fees they get from the sale of products such as insurance and annuities.   Consider hiring a fee only planner that charges by the hour, like myself, or charges no more than 1% of assets managed.  You can search for planner on NAPFA.org or garrettplanningnetwork.com

Total savings = $2,000 a year+ for investments of $200,000.

 8. Refinance your mortgage: With rates historically low if you haven’t refinanced, you may want to look into doing so now.  There are new governmental programs for underwater homes now available as well.  You can save big but know that you may need to have a good credit score and/or a loan backed by Fannie Mae or Freddie Mac in order to qualify.

Potential Savings- $3,000/yr for a loan of $175K assuming you reduce your rate by 2%.

Most Americans have a hard time understanding where their money goes every month.  It is important to create a method that is proactive, easy to monitor, and oriented towards your goals and values.  With this simple approach you can slowly build a upon success each month.

• Start by creating a cash flow plan that aligns with your values and goals.

Schedule some time to reflect on your values and goals and determine your money is being allocated to these goals.  Involve your partner, spouse and/or older children.

Assess how satisfied you are with your current life goals and dreams.  Are you happy with your relationships, career, social life, travel, health?  Which areas would you like to improve? Our time, money and energy should be redistributed based on our level of satisfaction with these areas.  This is an important step as it allows you to set priorities that will provide a framework for your plan going forward.  This will minimize conflict and disagreements about money.

People find that when they simplify their lives and spend less money on things they find better peace of mind.

• Next, you should review your spending habits from the past to establish where you are currently allocating your money.

Often people are surprised to find that they are overspending in areas that are not extremely important and would benefit from cutting back in those areas to increase their savings or expenditures elsewhere. If you are spending too much on eating out and you are committed to losing weight you may want to eat more healthy meals at home.  If you are spending too much on gifts to family members or charity but don’t have emergency cash reserves that would help you in the event of a catastrophe, then an adjustment may be necessary.  If you are spending too much on your children to the detriment of your retirement savings (and their college fund) then you need to reconsider your spending in that area. 

• Now that you have a cash flow plan that is realistic and aligns with your values, set achievable monthly cash flow targets for your discretionary (flexible expenses) and savings.

Setting up realistic initial targets are important because if we are able to reach our targets then we are motivated to continue monitoring our cash flow.

The best way to structure your system is to utilize three primary buckets or sources of expenditures.

Fixed                                        Flexible                                     Future
(Obligations)                        You Control                             Goals and Dreams

Mortgage, Utilities              Eating Out, Travel                College, Retirement

• You should calculate the amount of basic living expenses that are fixed each month and automatically deposit that amount into your checking account from your paycheck.
• Now set a target amount based on your income and spending goals from above and sweep that monthly amount into a debit account.
  

It is strongly recommended that you have one for each spouse as well as older children. For the first few months you will have to figure out what is most reasonable—not too harsh or restrictive and not too large so that you are not meeting your savings goals.  If you have this specific amount in a debit account you will not overspend like you would with a credit card.

• Finally, sweep target savings amounts into separate savings accounts that are designated for your specific goals. You may have an emergency reserve  account, auto reserve, retirement accounts, as well as vacation account.

By sweeping your amounts into these specific buckets it will force you to conform to the budget that you created that was based on your important life goals.

After a few months of this process you will find that saving is now on autopilot and you are finally starting to see a positive increase in your savings as well as improved peace of mind.

Good luck with it hope you make great progress this year!

Do you have a resolution to be more organized with your financial documents and record-keeping in 2012?  If so, here is a guide for you on what to shred and what to keep and for how long.  In Part 2, I’ll discuss how to set up your financial files.

First consider purchasing a high quality shredder and/or scanner.   This will facilitate the process.  If the process is quick and easy you are more likely to maintain it throughout the year.  A good quality shredder can be purchased for $300 or less at an office supply store.

What should you keep, shred?

Shred anything that has personally identifiable information like date of birth, social security numbers or drivers’ license numbers, or credit card information.  Credit card statements along with the associated receipts can be shredded after they are reconciled.  You should also shred monthly bills, old tax returns, old investment statements, and obsolete estate planning documents.

Quick Tip: Many people do not shred old hotel keys, expired credit cards and credit card offers they receive in the mail.  These may have valuable information that an identity theft could use to assume your identity.  Make sure to always shred or destroy these.

How long should you keep tax records?

It is recommended that you keep tax records for at least 7 years.  You can be audited 3 years after filing but six years after filing if you have not reported at least 25% of your income.  If fraud is suspected, you can be audited at any time.

Don’t shred- important certificates- birth, death, social security cards, marriage licenses, recent tax returns, insurance policies, updated estate plans, wills.

I suggest a fairly simplistic filing system separated by each major financial category in your life to get your started.  The five areas are outlined below with potential subcategories but you can customize it for your specific situation.  You can set these up electronically or the old fashioned paper file system.  I recently spoke with Curtis Wilson from WLTX regarding how to make it happen.

Set up files for your finances in the following categories:

1. Budget/Cash Flow- Include your annual budget, quarterly and annual actual spending versus budget.  Consider maintaining this with a software program like Quicken or mint.com. You may also want to include current info on your loans and other liabilities as a sub category in this electronic folder or file.
2. Insurance- Create separate categories for life, disability, auto and home, liability and or long term care.  Keep hard copies of policies in paper files but consider scanning all other info electronically.
3. Tax-Keep business and personal separate – Make separate folders either electronic or paper for the following subcategories- charity, medical, taxes paid, income (W2s,1099s, or checks, miscellaneous expenses).

Important Reminder: One commonly overlooked item that people do not record is the cost of any capital improvements to their home.  This is important especially for older or more expensive homes as you are allowed upon sale to make up to $250,000 in profit if you’re a single owner, twice that if you’re married, and not owe any capital gains taxes.  So make sure you keep ongoing records of the cost of your improvements and update the cost basis of your home at least annually.

4. Investments- scan any cost basis (purchase) information and annual statements. Can shred quarterly once you receive annual statements. Important- don’t forget to keep records of your non-deductible IRA contributions.

5. Estate planning - correspondence, wills, trusts, durable powers of attorney, health care directives.

Quick Tip: Consider tackling one of these per month or quarter to make it less of a daunting task.  For example, set up your tax and budget filing system and electronic file for monitoring it in the first quarter of the year, work on setting up your insurance files and getting competing quotes if necessary in the second quarter of the year, and estate planning in the third quarter. Finally review your investments using Morningstar the last quarter of the year and make changes to harvest losses against gains to maximize your tax planning for 2013.

Investors were rattled by volatility in 2011.  Intraday swings of three digits are frustrating; but, to put it in perspective, given the roller coaster ride we experienced this year, the S&P 500 is only up fractionally +.61% as of this posting.  Expect markets to be punctuated by this type of volatility in 2012 as the events that are causing financial markets to fluctuate have not been addressed.  Indeed, we live in interesting times, where politics and policy are driving financial markets far more than fundamentals.

Political Gridlock and Uncertainty

Developed economies such as the United Kingdom, United States, and Eurozone nations such as Portugal, Ireland, Italy, Greece, and Spain, among others, are facing increasing unsustainable debt levels.  Proposed austerity measures are tough medicine at a time when these countries are trying to emerge from recession.  Ideally, there will ultimately be a “goldilocks” solution that reduces spending just enough to fix these issues long term but that is not so stringent as to choke off nascent signs of recovery.

Giant Holding Pattern

Politicians in the midst of an election year here in the United States are loathe to compromise by creating long term structural solutions to the debt situation we face in this country.  This only exacerbates the issue long term by delaying the inevitable.  Past neglect of this issue has come to roost and the recipe for growth and debt reduction will require sacrifices all around in the form of invariable tax increases as well as substantial reform of entitlement programs, particularly Medicare.  What the ultimate form of these changes will be is highly dependent on who wins the election in 2012.

Consumers and business owners alike are delaying spending decisions due to uncertainties over taxes and regulations post 2012.  There are just too many unanswered questions. Considering there will be a year’s worth of dickering, there will be precious little time to plan for the inevitable changes in 2013.  What will the personal income tax structure look like? What about the estate tax system? Will states and local municipalities under pressure to balance budgets institute additional taxes and pension reforms?  What will the Supreme Court decide with respect to the legality of the Healthcare Reform Bill and can it even be implemented cost effectively in its current form?  The multitude of issues that remain unresolved only serves to “enhance the dance” of financial markets.

European Debt Woes Persist

The resolution of the debt problems in the Eurozone remains uncertain with parliaments of the 17 countries having to agree upon terms in a timely fashion that ultimately may undermine their own sovereignty.  Since over 1.1 Trillion Euros of debt need to be refinanced in 2012, many of it in the first quarter, this will be a potential catalyst for a market meltdown (or upswing if meaningful reforms that have accountability are instituted).   Many options are possible including the dissolution of the Euro, certain profligate countries returning to their past currency in order to inflate their way out of their debt situation, or increased fiscal coordination and enforcement among Eurozone nations with Germany, the wealthiest of the Eurozone nations, taking on a more formal leadership role.

Prolonged Hangover after the Debt Binge

Globally, we are experiencing the aftermath of a credit bubble that burst from consumers overindulging in easy credit to buy things they could not necessarily afford in order to satiate the appetite of investments bankers addicted to the financial products they invented.  The insidious leverage that resulted became a toxin that global banks, governments and consumers are now trying to purge from their systems.  This will take a while to unwind.  The shadow inventory of homes in America alone will take upwards of 4 years to work its way out of the system.

Glimmers of Hope in Recent Economic Data

Economists and pundits are taking cover in the recent spate of positive economic trends.  Whereas these data would be disappointing when compared to data from more robust periods pre-2007, or even when compared to recoveries from recent post-war recessions, they are being touted as positive relative to recent moribund performance.
Apparently less than terrible is the new good.  To wit:

Resilient consumer spending has been at expense of a declining personal savings rate and spurred most likely by continued government transfer payments such as unemployment benefits and payroll tax cuts as well as recent declines in gasoline prices.

Employment is picking up, but primarily because discouraged workers are leaving the work force.  Job increases have been skewed towards lower paying service jobs.  A more accurate measure of unemployment using the U6 unemployment gauge indicates a rate of unemployment of roughly 15.6% as of the end of November.

Housing activity has perked up lately, but primarily due to an increase in multi-family dwelling units.  Demand is still not meeting supply, driving single family home prices down.  Furthermore, an increase in the supply of rental units will force rental rates lower.

Taming the Inflation Beast-The Silver Lining to a Slowdown in Emerging Markets

Strong growth in emerging markets has abated putting downward pressure on raw material prices and crude oil.  Look for sluggish growth here to create a disinflationary, if not deflationary trend.  After all, reduced oil prices are similar to a tax cut for consumers which provides helpful ballast to spending as we attempt to resurrect ourselves from this recession.  These developing countries also have more latitude to reduce their interest rates to spur growth, ammunition that America does not have given our historically low interest rates.  Look for these emerging markets to be a potential bright spot among the clouded performance of developed nations.

In summary, expect continued volatility, sluggish global growth (if not a recession in Europe), and potentially a large market correction in response to an exogenous geopolitical shock. If a shock occurs due to problems in Europe or strife in the Middle East, it could be the catalyst for contagion such that the United States and other developed nation as well as emerging market countries slip into recession. My wish and hope for the new year is a hope for the best– that cooler heads will prevail in government and that mitigating events only serve to precipitate politicians to construct meaningful policies and reforms that will result in future global growth and prosperity.