| Face the Future With Clarity and Confidence |
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I help clients sort through the avalanche of numbers, details and conflicting advice they face, to make sense of what they have - so they can face the future with clarity and confidence.
Call 978-635-9687 or email me (Kathy@NashobaFinancialPlanning.com) today to talk about which of our services might be right for you. Preview the Confidential Questionnaire on our website by clicking on "Client Forms". Visit our website . . .
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 As the stock market gyrates - mostly lower - and bad economic news keeps hitting the front page, you may be wondering what to do. First, take a deep breath. Emotion leads us to make bad, sometimes catastrophic, decisions. Second, get yourself on a long term plan that will shield you from the ups and downs in the economy. Our clients have plans that protect the money they need to live on. You should too. Third, read the rest of this newsletter. The overall theme this month is to focus on what you can control, and to avoid letting emotions drive your actions.
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Weathering Economic Storms
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OK, so a recession is close, or we may be in one and not know it yet. Or there may not be one. This can feel pretty scary:
- You could lose your job
- Business is slow so there may be no bonuses this year
- The value of your investments is down sharply
- Your home value has fallen so you can't sell it and buy a less expensive one
So, take a deep breath. Realistically assess each of your worries. How likely is it that you will lose your job or earn substantially less? Do you need to sell investments that have fallen in value to provide living expenses? Do you need to move now for some reason? Some of these may hit home, but for most people these are fears with a low probability of having an impact.
Our clients are always prepared for a downturn. We make sure that the money they need to live on in retirement (or for special projects, like home renovation) has been set aside in interest earning investments that don't fall with the stock market. We also make sure that they have an emergency cushion of cash that they can draw on if they lose their job. We recommend a portfolio allocation that reduces overall risk. And we help them have the right size of house and mortgage. These are all things you can control. We call them "endogenous variables" meaning "living inside". Building wealth means paying attention to these variables that you can control.
So what do you do about the exogenous variables such as market return, interest rates, home prices, and the like? You don't have any real control over them. Stop trying. However, the financial industry and financial media try to convince you that you can and should do something. They have figured out how to turn that emotion you're feeling into profit. Unfortunately, it's their profit and not yours.
How to survive now? Avoid the siren song of brokers appealing to your fears and urging you to take action in response to things you can't control. Don't make emotional decisions. Do protect your employment income (don't let go of one job until you have another). And most important, if you aren't ready for this economic storm, put together a plan based on an objective assessment of your situation.
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| Important Tax and Rebate News |
Prove you have health care!
For Massachusetts residents, you need a 1099-HC from your health care provider to complete your state tax return. Interestingly, if they are an out of state provider, they may not provide the 1099-HC. If you don't get one you will need the name of your health provider/administrator and the subscriber/policy number from your medical card. If you don't have insurance your personal exemption gets limited.
Grandma Passes Go, Gets $300 Rebate
If you file a tax return for 2007 the IRS will figure your rebate and send you a check. Some people need to file a return just to get the rebate, even though they otherwise would not. For example, some retirees who ordinarily would not need to file a return. However, if a senior citizen gets $3000 or more in income including Social Security payments, they should file and report their Social Security income to qualify. The IRS details can be found at: http://www.irs.gov/irs/article/0,,id=179096,00.html.
Some situations worth looking at, where a tax return might not normally be filed:
- Seniors on Social Security
- Recipients of Veterans Benefits
- Low income earners who earned $3000 or more and are not being claimed as dependents
Last year only a small percentage of eligible people claimed the telephone tax credit, possibly because those who did not normally file missed out. Don't miss this one.
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Sell That House!
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 Bert Whitehead (Bert Whitehead, JD, MBA, Franklin, MI), founder of the Alliance of Cambridge Advisors, told this sobering story about a client of his caught in the slow real estate market:
"My new clients were in their forties and prosperous, together earning over $250,000, and they had just moved to a new city with their two children. Both had landed more lucrative and satisfying jobs, and they bought a new home for around $1 million. They had accumulated about $750,000 in their investment portfolio over the 15 years they had been married. Their future was bright, with only one large shadow: more than three months after they moved out, their former home, appraised at $750,000 just two years ago when they had refinanced, had not sold. Indeed, they had not received a single offer."
They had bought a new house without selling the old one, a cardinal mistake in real estate. They had strong emotions about the value of their house and how much they should get for it. With the mortgage payments, increased insurance on the vacant house, maintenance and property taxes, they were paying about $50,000 per year in carrying costs. And, prices continued to fall at over 5% a year in their neighborhood, costing them another $40,000 per year.
Like all of us they wanted to get out what they had put into it. Bert showed them their thinking was emotional and had nothing to do with what the house was currently worth. They needed to recognize that their house is worth what the market says it is worth, and to reduce the price substantially in order to sell it now and stop the bleeding. Bert says:
"The old saying surgeons use applies here: 'Your first cut bleeds least, so make sure you cut deep enough!' "
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The Book Nook
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Why Smart People Do Stupid Things With Money by Bert Whitehead 
More Bert Whitehead--we give this book to all of our retainer clients. He gives great advice in a style that sometimes hits you between the eyes. No punches pulled in this book by the founder of the Alliance of Cambridge Advisors.
Get ready to find out in what way you are financially dysfunctional. The book offers some simple diagnostics to help you decipher your money personality. This is a must for couples who share money responsibilities. I don't promise this understanding will reduce your money conflicts (on the off chance that you have any...)--but you'll know what you are arguing about!
I believe the most important dysfunction is misunderstanding the difference between endogenous factors that you can control--like how much you save-and exogenous factors you cannot control--like stock market returns. People do stupid things with their money when they try to chase returns or engage in other schemes that they think will let them beat the market. Bert also discusses common financial strategies, like prepaying your mortgage with bimonthly payments, that people think will work but which in fact are harmful.
This is no-nonsense advice for real people. I recommend it.
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