5 Tips for Women to Secure Their Financial Future

As women’s roles expand in our workforce, communities and family networks, so too do their responsibilities. Women are increasingly independent, personally and financially, often supporting both themselves and other family members. Yet gender-specific issues like lower earnings and longer lifespans continue to challenge their long-term financial security. Here are five essential money tips every woman should follow.

1. Don’t Be a Silent or Absent Financial Partner

If you’re in a relationship, be financially present too. Financial complacency puts you, and potentially your loved ones, at risk. You might even be placing additional strain on your relationship by burdening your partner with all the financial decision-making. Staying involved avoids:

• Being out of touch with your financial standing;
• Not knowing if you’re prepared and/or on track for longer-term life objectives;
• Struggling to manage the finances in a crisis; and
• Becoming financially vulnerable in a marriage. (For related reading, see: Women: Invest in Your Financial Literacy.)

Review and Understand Your Tax Return, Don’t Just Sign It

Simply signing a tax return (or any document) is one of the most common financial mistakes women make. Your return is a useful document for monitoring your income and your assets. It might seem intimidating, but two easy things to look for are:

• How much your family earned (Form 1040): Your adjusted gross income (AGI) gives you a sense of your household income. Ask yourself if you’re making wise spending and saving decisions relative to this figure.
• What investments you own (Schedules B, D & E): Be aware of the assets you own, which are typically identified on Schedules B, D and E. If an account or entity is listed, you should know how it’s titled and its value. Ideally, you also should be aware of retirement assets (e.g. IRAs, 401(k)s) that might not appear on the tax return. (For more from this author, see: Is Maxing Your 401(k) Contribution Enough?)

Be Cognizant of Your Personal Financial Security

While women’s income equality is improving, including more female breadwinner households, women are often still the lower household earners. This might be the result of being a stay-at-home mom, working part-time to raise a family, or caring for other relatives. Whatever your earning potential, make sure you’re financially protected:

• Have assets in your own name: Joint ownership can help to encourage financial involvement, but it can also leave you at risk in the event of divorce. Make sure some assets are in your name for greater individual security.
• Make contributions to a retirement savings account: Always contribute to your retirement plan, ideally maximizing your contributions. Even if you don’t work, you might still be able to contribute to an IRA, depending upon household income.
• Protect yourself with adequate life and disability insurance: If you rely upon a partner to support some or all of the household expenses, life and disability insurance will protect you and your loved ones in the event of their disability or death. Likewise, ensure you have adequate individual coverage. (For related reading, see: The Importance of Life Insurance for Women.)
• Assess if you could qualify for a loan: If you have loans like a mortgage, or may need one in the future, make sure you could qualify for a mortgage independently in the event of a death, disability or divorce.
• Maintain your skill set: If you’ve taken time off to care for children or family members, keep your skill set current. This can help ease a potential return to work in the future.
• Consider loss of benefits if you remarry: If you’ve lost a spouse through death or divorce, carefully evaluate benefits you might lose in the event you remarry, such as pensions, Social Security, or alimony.

Consider Your Potential Longevity as a Woman

As a woman, you’re likely to enjoy a longer lifespan than your male counterparts. You’re also more likely to be single at some point in your life, but especially in later years. Being alone as you age requires financial and emotional security, and ongoing participation in your finances. Be sure the financial decisions you are making will allow you to enjoy today, as well as amass adequate assets to sustain your potential longevity. Research long-term care insurance to protect yourself against the greatest cost in retirement, and ensure​​​​ you have a group of family members, friends and/or professionals to assist and support you as you age.

Don’t Be Too Conservative or Too Generous With Your Money

Women tend to be more conservative when it comes to investing, and they often focus more on what money can do to help others instead of themselves. Make sure you’re not missing out on investment opportunities by being overly conservative (e.g. only investing in CDs or annuities). Furthermore, be cognizant of your own financial needs relative to those of your family and/or charitable interests.

One of the easiest, yet most effective, ways for any individual to achieve financial empowerment is to partner with a trustworthy, experienced advisor. Look for a fee-only fiduciary, meaning advice will be unbiased and focused solely on your best interests. If you’re a woman, consider a wealth advisor who offers services specifically tailored to women, including customized planning designed to support your unique personal and financial objectives. (For more from this author, see: 10 Finance and Relationship Tips for Working Women.)

cr. https://www.investopedia.com/advisor-network/articles/5-money-tips-women/

The Advantages of Automating Your Financial Life

Most net savers — a rare but dignified bunch — tend to have similar financial habits. A person in this group typically spends less than she makes, lets money accumulate in a checking account, and then wonders what she should do with the excess. If the stock market is trending down she thinks, “I’ll wait for it to go lower before getting in.” If it’s going up she thinks, “I’m just going to wait for a pull back before I invest.” This leads to atrophy until one day she gets bored, realizes the cash balance is too high and determines to put excess funds into the first thing that strikes her fancy. That could mean paying down debt, investing, or turning on HGTV and figuring out how she is going to flip properties.

Most investors would be better served by automating the process, or creating a strategy that divides the anticipated savings between cash accounts, retirement accounts, taxable accounts and debt payments and then setting the monthly transfers to each one on autopilot. (For related reading, see: How to Avoid Common Middle-Class Money Traps.)

Eliminating Emotion and Atrophy

The first step is to create a budget and determine how much excess is available every month. Websites and applications like Mint.com are completely free and make this process incredibly easy. They allow consumers to aggregate their financial lives in one place. Combining the transactional data from bank accounts, credit cards, student loans, car loans, mortgages, and investment accounts provides the user with a clear picture of her net worth and cash flow broken down by category.

Second, once a budget is created and the anticipated excess savings is earmarked, it’s imperative to determine how much should be added to each account. It’s important to remember that not all accounts are created equal. For example, maxing out a Roth IRA is a terrific idea for long-term money, however, if the funds are going to be needed in the near future, a cash account may be a better choice. 

Third, if the plan involves paying off debts, determine the order in which the loans should be paid off. The goal should always be to pay down the highest interest loans first, adjusting for any tax deductions. If the plan involves investing, determine the appropriate long-term allocation. The overall mix between stocks, bonds, cash, and alternative investments should account for the investor’s age, goals, and risk tolerance. (Every investor has a different set of goals, risk tolerance and tax situation — discuss your plan with your financial professional before making any investment decisions.)       

Fourth, the most important part is establishing automatic transfers that will take place every month. Automatic bill payment solutions provided by lenders and ACH transactions facilitated between banks and investment companies make the process seamless. When the cash goes into a debt account, consumers need to make sure it’s being used to pay down principal rather than prepay interest. When the cash goes into an investment account, consumers need to make sure it’s being invested according to the prescribed allocation. (For related reading, see: Diversification and Lessons from a Normalizing Market.)

It’s as easy as that. Technology simplifies the automation process and does consumers the favor of taking emotion out of the equation. Studies have shown people make terrible financial decisions when they are emotional or when they overthink things. When left to their own devices, people tend to poorly time the stock market, buy expensive things they can’t afford or invest in their friends’ doomed-to-fail startups. Additionally, money invested more frequently compounds faster. As an example, after 30 years, assuming a return of 6%, a person that added $1,000 to her account every month would have earned about $56,000 more than the person that contributed $12,000 once at the end of every year. (For related reading, see: 8 Common Biases That Impact Investment Decisions.)

cr. https://www.investopedia.com/advisor-network/articles/061516/plusses-automating-your-financial-life/

Retiring Early Can Create Tax Saving Opportunities

I will be posting a three-part series over the coming months about tax planning leading up to and including early retirement. This is part one.

We've had quite a few clients who retired in the past two to three years, and this creates unique tax planning opportunities.

I call the period between age 60 and 70 the “golden decade of tax planning.” Why do I call it that? Because if you retire in your early 60s, you have a once-in-a-lifetime opportunity to do proactive tax planning before you reach age 70 that can potentially reduce your future lifetime income taxes by tens of thousands of dollars!

You will be in that rare period of your life when you are not working and earning an income, but when other uncontrollable income has not kicked in yet. I will explain what I mean by “uncontrollable income” in my next blog post, but it is essentially income that once it starts, you can’t stop it or really control the amount. One example would be a required minimum distribution (RMD) from your retirement plan—which is all taxable as regular income, of course.

What Are the Factors Behind the Golden Decade of Tax Planning?

• -You can take retirement plan distributions starting at age 59.5 without a 10% tax penalty, so you can fine-tune what you take and not worry about tax penalties. 
• -RMDs from retirement plans don’t start until age 70.5, so you can let your retirement assets grow as we tap other sources of income.
• -You can delay Social Security until age 70. Delaying has the benefit of not only reducing taxable income but also allowing your benefits to grow. (For related reading, see: Top 6 Myths About Social Security Benefits.)
• -Once you retire, your income usually drops dramatically. Suddenly, your taxable income is now in brackets you only saw decades ago when you started working.
• -If your taxable income is low enough, you can harvest long-term capital gains at 0%. Yes, you really can harvest long-term capital gains without paying any taxes. 
• -Reducing your IRA balances during the golden decade will reduce your future required minimum distributions. This has the benefit of reducing future taxable income.
• -You can build up your Roth IRA balances to create more flexibility in your future retirement “paychecks.” Having larger Roth retirement balances means you can tap that income with no income tax ever. Your Roth accounts can then become perfect emergency or splurge accounts.
• -You may even be eligible for Obamacare tax credits before you qualify for Medicare at age 65. Yes, this is a possibility as long as your income remains under 400% of the federal poverty level for your household size. 

Now, even if you don’t retire early in your 60s, you still have opportunities. They may be over a shorter period, but you can still structure your accounts and income to pay a bit more in taxes now to avoid paying more in the future. (For related reading, see: Not All Retirement Accounts Should Be Tax-Deferred.)

Yes, there are a lot of moving pieces to consider, but opportunities abound if you know how the pieces fit together. That’s what makes this 10-year period so challenging and interesting. And it is a chance you may never get again during your lifetime.

Now, a word of disclaimer: Keep in mind that tax laws change, tax brackets change, and assumptions about the future are just that—assumptions. The challenge is to take advantage of the tax-planning opportunities available in the short to medium term without betting your entire strategy on assumptions that may change in the long term. (For related reading, see: 5 Tax(ing) Retirement Mistakes.)

cr. https://www.investopedia.com/advisor-network/articles/retiring-early-can-create-tax-saving-opportunities/

Good Financial Plans Need Slush Funds

Slush funds may historically have a negative connotation due to corrupt politicians, but I prefer to think of my grandmother. I remember spending several weeks each summer at Grandma’s house near Alexandria; she would take us toy shopping at the beginning of the week so we would have something to play with during our stay. Before leaving the house she would always go to her slush fund, a specific drawer in the dining room, and pull out $5.00 or $10.00 to give to us to spend. When I look back on that experience I realize it did not matter how much money grandma had, the slush fund gave her the freedom to enjoy life in the present without worrying about how that spending affected her retirement.

A Slush Fund Allows You to Take Advantage of a Bad Market

I have noticed when markets are doing well, people are willing to spend more. And when markets are not doing well, people spend less. This is not profound but it does have profound consequences. In the last two years I have heard many say they wanted to take advantage of an opportunity but just did not feel like they had the money during a bad market. And if you think about it, a bad market is exactly when the opportunities arise—lower remodeling costs, marked down cars, travel specials, bargains at retail stores or even just helping an unemployed child. A good financial plan that allows you to retire should also allow you to have fun and participate in these things, in good markets and bad.

Three Slush Fund Rules

I propose that everyone should have a slush fund. And there can only be three rules to this slush fund.

First, it can be used for whatever you want whenever you want; your financial advisor does not even get a say in it. I suggest you only consider using the fund if you really want something because rule number two is even simpler. 

Second, when the money is gone, the money is gone. Every person will have a different size pot for their slush fund—probably 2%-5% of their overall wealth at retirement. But that needs to last the rest of your life. The only way to get more into the slush fund as you spend it down is if new assets come in, like the sale of a piece of property/other appreciated assets, newly earned income or an inheritance.

The third rule is the hardest—you have to enjoy the slush fund. Enjoyment means you do not worry about spending this money, in good times or bad. This fund should take the pressure off when you weigh the effects of going on a dream trip to Italy against monthly living expenses. We financial advisors preach saving so often that sometimes we forget to also tell people to have fun. (For related reading, see: Save Without Sacrifice.)

A slush fund will free you up to make fun decisions while also putting parameters on those decisions. Since there is a finite amount in the fund, you will be forced to consider whether you really want something. But when you say yes to that question, you will enjoy it a whole lot more because the act of defining what is important and restraining spending to what is important will create a level of enjoyment you just cannot get by buying things whenever you want. My grandmother knew this, and she taught us how to make good decisions by simply using a drawer and calling it a slush fund.

(For more from this author, see: How You Invest Now Can Affect Taxes in Retirement.)

cr. https://www.investopedia.com/advisor-network/articles/good-financial-plans-need-slush-funds/

How a Step-up in Basis Reduces Capital Gains Tax

What’s the single biggest expense that you will incur during your lifetime? You guessed it, taxes! Nobody enjoys giving away their hard-earned dollars to the Tax Man. This is all the more reason to take advantage of any rare instances where tax implications can be minimized.

A step-up in basis on inherited assets (from a decedent) is a prime instance where your tax liability can be reduced. This commonly overlooked tax benefit can be advantageous to a beneficiary when inheriting assets and it is crucial to understand when and how to effectively implement this strategy.

What Is Step-up in Basis?

What exactly is a step-up in basis and how is this beneficial? Defined as the readjustment of the market value of an appreciated asset for tax purposes upon inheritance, a step-up in basis values the asset using the cost basis at the time of inheritance rather than the value at the time of purchase. It is very important to understand that this tax benefit only applies to appreciating assets, such as securities or property.

When an asset gets passed on to a beneficiary, its value tends to be greater than the value at which the original owner acquired it. For example, your friend’s aunt has just passed away and left your friend 100 shares of Disney stock. The stock was originally purchased for $50.00 and the current market value is $100.00. The $50.00 difference between the purchase price and market price is defined as the capital appreciation and this is the component that the beneficiary will have to pay capital gains taxes on. But what if we could reduce the amount of that capital gain? Can we also reduce the amount of the capital gains taxes owed? (For related reading, see: What You Need to Know About Capital Gains and Taxes.)

Can You Reduce Capital Gains Taxes?

The answer is yes; this is exactly where the step-up in basis comes into play. On the day your friend’s aunt passed away, the Disney share price was $90.00. With a stepped-up cost basis, the asset’s cost basis is now the market value as of the date of the decedent’s death ($90.00), not to be confused with the current market value ($100.00). Instead of your friend paying capital gains taxes on a $50.00 gain, he is only responsible for paying taxes on the $10.00 capital gain. The adjusted cost basis has decreased the size of the capital gain and the capital gains taxes which go along with it.

As a beneficiary inheriting assets, it is very important to be aware of the limitations associated with a step-up in basis. One important rule to note is this tax benefit does not apply to any assets that are held jointly with children. In addition, you cannot apply a step-up in basis to any tax-deferred, qualified retirement account. This means you will not be eligible to receive a step-up in basis on any IRAs, 401(k)s, 403(b)s or any other qualified account. Lastly, you must be aware of the fact that assets can also receive a step-down in cost basis. This is simply the opposite of a step-up in basis.

Although this tax rule is not one that an individual uses regularly, it is still important to be cognizant of the fact it exists. If you think you or someone you know may be eligible to receive a step-up in cost basis on recently inherited assets, it would be wise to consult with your financial advisor on how to proceed.

(For more from this author, see: The Importance of Having a Business Exit Strategy.)

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

cr. https://www.investopedia.com/advisor-network/articles/how-stepup-basis-reduces-capital-gains-tax/

The Big Difference Between Good Debt and Bad Debt

Many popular personal finance gurus espouse a philosophy of avoiding debt at all cost. They point to all the negative consequences of abusing credit, with an overarching theme of how big, evil credit card companies and banks take advantage of ordinary people and drive them into a lifetime of modern-day slavery to their credit card debt.

But what they won’t tell you is that there’s actually such a thing as “good debt.”

Why Debt Can Be Good

Credit, used responsibly and in moderation, is good for the overall economy because it can help facilitate more transactions and allow for a faster transfer of goods and services. However, it can also be very bad for your financial health if abused. And abusing credit is extremely easy to do because money is constantly thrown at us by banks and other lenders. (For related reading, see: Credit Card Debt: America's Biggest Struggle?)

The good news is there is a very easy way to determine if something is potentially good debt or bad debt. The key is to take a closer look at what debt really is—it’s simply spending your future income to buy something today. So it stands to reason that the only time you should borrow money against your future income is if you use it to buy something that will enhance your future income.

When you buy a latte using a credit card, for example, you’re borrowing from your future self’s income to buy that coffee today. You don’t have the cash to buy that coffee, so you charge it and go on your merry way. It’s your future self’s problem, right?

The problem with this is not, in and of itself, the fact that you bought something on credit. The problem is that what you bought on credit doesn’t increase your future income, which is what you will use to actually pay for that coffee. But if, on the other hand, you borrow money to buy something that will produce income in the future, then you’ll have the money to pay back the debt plus the interest. The key is to buy something that pays enough additional income (or that appreciates in value) to do that and still have more leftover. (For related reading, see: 10 Reasons to Use Your Credit Card.)

For example, let’s assume you used credit to buy a rental property. That property receives income every month, right? Therefore, you’ve increased your future income by buying that property, even though you didn’t have the full amount in cash to buy it.

That is the fundamental difference between “good” debt and “bad” debt.

Examples of Good Debt

Here are a few examples of what I consider potentially good debt, if used responsibly. Now, you can probably find an exception to these broad categories. For example, while I list student loans as potentially a good debt because, in theory, it increases your future income, a degree in the humanities that costs $200,000 may not fit that mold. But generally speaking, student loans can be good debt if they help you build skills to compete in the job market and earn a good income. The key is considering whether the future payoff is enough to warrant the cost.

• Student loans
• Mortgages on rental property
• Business loans (Again, like any debt, these can be easily abused. But if the business is successful then, obviously, using debt is a lot quicker way to get started.)
• Credit cards – but only if you pay off your credit card in full every month, on time. If used this way, you can rack up tons of rewards and also build your credit.

Benefits of Good Debt

Some of the everyday benefits of using debt wisely include building a good credit score, getting perks and rewards such as airline miles and cash back, and tax advantages (on mortgage interest and student loans, for example.) But the most powerful benefit of credit is the concept of leverage. An in-depth discussion of leverage is beyond the scope of this article, but I’ll say here that leverage is just what it sounds like—it works like a lever to increase your investment return over what you could achieve with cash alone. (For related reading, see: Leverage: What It Is and How It Works.)

As an example, let’s assume that you buy a rental house for $100,000 and put down 20% for the down payment, so $20,000. This particular property rents for $1,000 per month, and your total expenses including mortgage interest, maintenance, taxes, and insurance are $800 per month So, you make $200 each month from this property, which is an annual return of 12% on your original cash investment.

Now let’s compare that to if you had not borrowed the 80% to buy the property, but instead paid for the whole thing with your own cash. In this case, you do not have to pay the mortgage payment, and therefore can “net” much more from each rent payment. Let’s assume you now get about $600 net each month in rent.

You’re making more money, right?

While you are making more in dollar terms, you actually earn less as a percentage of your initial investment. Believe it or not, your investment return has actually gone down. Why? Because the mortgage acts as a lever to increase your return. In this case, the un-leveraged rate of return would be 7.2% ($600 per month times 12, divided by your investment of $100,000.) (For related reading, see: Should Parents Save Towards College or Retirement?)

While Debt Can Increase Returns, It Also Increases Risk

Lest I give you an overly rosy picture about debt, let me add one more clarifying detail. In the above example, I showed how the return on a rental property can be almost doubled by adding leverage. While that is true, and a well-known financial principle, it should be noted that leverage works both on the up-side and the down. The recent financial crisisis a classic example of this. Many investment banks were highly leveraged with complex mortgage-based financial instruments, and when the economy turned, they went bankrupt or had to be bailed out. It works that way on a personal level too. Debt can be a powerful tool, both for good and for bad. If you decide to employ good debt, please use it responsibly and with caution. (For more from this author, see: 5 Things the Wealthy Can Teach Us About Money.)

This article originally appeared on the Smart Money Nation blog.

cr. https://www.investopedia.com/advisor-network/articles/012417/big-difference-between-good-debt-and-bad-debt/

Don't Listen to Advice Without Considering Taxes

Years ago when I was about to enter the working force and earn my first paycheck, I was engulfed with advice, recommendations, and ideas of what opportunities would become of my exciting endeavor. I remember one key item: It's not how much you make, it’s how much you save. This was an important aspect that my family instilled in me. It stuck with me for the rest of my working career and is consistent to the advice I share with my clients.

The fact is, the simple concept of saving smartly can create complex options that are often mismanaged.

I want to focus on traditional advice around savings. The problem I have with people giving advice whether it's on the radio, TV, or from family and friends is that each situation is different. You cannot take the advice that works for one individual and replicate the recommendation to another. Depending on their situation, one scenario can be very contradicting to another. (For related reading, see: Financial Planning Basics in 5 Steps.)

Don't Forget to Think About Taxes

Two popular retirement savings strategies are a traditional 401(k) and saving into a Roth IRA. For someone who is just starting out or who is nearing retirement, these two concepts are often compared. Let's shed insight into another perspective: taxes! Taxes play a huge role in the decision to save for retirement. The mistake I made working was when I was young was saving to a traditional 401(k) plan without looking at any other factors relating to the long-term financial effects. What I wish I was told was how our tax system works—I was only in the 15% tax bracket, so for every $100 I saved, I only got back $15 in federal funds. 

As I continued my work career and started giving out financial planning advice, I realized I wasn’t the only one making this mistake. The important question is, What tax bracket do you see yourself in retirement? We have been told our whole life to defer, defer, defer! I think this advice is flawed. You must also look at how much you have saved in tax-deferred money. You should consider your income in retirement with Social Security, any pension, or other investments or retirement money that's tax-deferred. This can kick you into a higher tax bracket in retirement.

As I worked my way up in my professional career, I later realized that as I climbed, I was hitting higher tax brackets. The 15% didn’t look so bad anymore. In addition, the amount I saved seemed to triple as time went on. I now wish that was tax-free growth—in retirement, I will eventually be taking the money out of tax-deferred accounts at different tax rates. For a traditional tax-deferred retirement account, when you withdraw, you are taxed at ordinary income tax rates. Currently, the rates start at 10% and ends at 39.6%. (For related reading, see: 4 Keys to a Satisfying Retirement.)

Tax Bracket Hopping

The common thought is that in retirement, you will be in a lower tax bracket than you were during your working days. Depending on your situation, though, that might not be the case. Retirement income sources tend to be Social Security, pensions, rental income, and retirement accounts. With required minimum distributions (RMDs) and deductions decreasing for retirees, typically people are in the same—if not a higher—tax bracket during retirement. 

Understanding your financial situation is important, especially when you're in your 20s and 30s. Typically, young workers are in lower tax brackets; Roth IRAs could be a great fit at that age. With those plans, you forfeit your tax deduction but the account grows tax-free for the rest of your life. You are also not forced to take your RMDs. This money also passes to your heirs tax-free.

The key is to understand your current tax situation and know what your tax situation will be in the future. If you current income is stable until retirement, then maybe you should analyze your income sources in retirement to make sure it's proper to defer now for a tax deduction. This does, however, put off the taxes until you take it out in retirement.

For those starting out with their first job and learning about their 401(k) options, they'll likely hear how they should save to it—it's a tax write-off. My argument is that the decision to defer depends solely on your tax situation. Making the initial decision could save tens or even hundreds of thousands of dollars throughout your life. Do not fall prey to the flawed advice that we all have gotten in the past. Depending on your financial and tax situation, you could be deferring your problem of how taxes become a real issue during your golden years. (For related reading, see: Turn Retirement Cash Flow Into Your Own Paycheck.)

cr. https://www.investopedia.com/advisor-network/articles/090816/dont-listen-advice-without-considering-taxes/

4 Must-Do’s for Basic Financial Safety

Most mistakes can be fixed. With regard to your financial safety, there are a few things you can goof up that can cause long-term and sometimes irreparable mistakes. What really matters when it comes to financial safety?

Financial Documents

My two Millennial children aren’t into paper documents. They’ve fully given themselves over to the cloud. I get it. I’ve physically lost airplane boarding passes, shopping receipts and insurance cards, only to be saved by finding the electronic version on my email. However, in 2017, you still need to be able to clutch a few key docs in your sweaty palm. Hard copy documents will help you prove your identity and justify well-deserved benefits if your identity is stolen or key electronic keys are irreparably compromised. Here’s a list: (For more, see: Avoid Becoming An Identity Thief's Next Victim.)

• Original birth, adoption, marriage, and death certificates and Social Security number cards (and copies kept in a different location).
• Current and expired passports and passcards (and copies kept in a different location).
• Last will and testament.
• A list of your credit card numbers, expiration dates and CVC codes because these are no longer available on your statements
• Military discharge information including DD214 and Certificate of Eligibility.
• Social Security retirement benefits estimate (just one for each family member. Info is online, but a printed out copy can be useful if identity theft occurs)/
• Tax return (returns and W-2s for the last few years).
• Financial and investment-related statements. Just one of each will do.
• Original loan documents (student loans, mortgage, car, etc.).
• Original policy documents for insurance such as life, home or health (you don’t need the bills, etc., but the original policy info is important in case company ownership changes or you are disputing a claim).

Many people don’t have printers at home anymore, so it’s worth the money to put statements on a thumb drive and pay to print at the library or Staples.

Designation for Kids’ Guardian

If you have kids, you need to pick a guardian in case you both die in an accident. Then you need to discuss that responsibility with the person you’ve chosen and put it in writing in your will. As your kids get older and their needs change, you may want to revamp your guardian choice. For example, your parents may be too ill to care for your older children or your sister’s parenting style might no longer jive with yours.

A guardian doesn’t have to be a family member. You can choose friends as long as you clear it with them first. I don’t think it’s necessary to formally tell un-chosen relatives, “You’re not our kids’ guardians.” But you definitely need to clear potential guardianship with the person you are naming. The chance that you both will die when your children are little is incredibly low, but it’s not zero, so this crucial action must be discussed, completed, written, signed and revised as necessary. (For more, see: Three Documents You Shouldn't Do Without.)

Education and Training

Friends, spouses, cash, assets and hairlines come and go, but a college degree or welding cert can never be taken away from you. The undeniable permanence of these accomplishments is comforting. Although most educational documentation is online today, it’s worth it keeping printed copies of degrees, diplomas, certifications and test grades. You can bet I still have the print out I got when I passed the 10-hour CFP test. Keep hard copies of hard-won qualifications and be sure to do the renewals and continued education that keeps them current even if you don’t anticipate an immediate need for them.

Health

It’s no secret that health directly affects finances, but a few issues necessitate precise management. Chronic, life-threatening disease is one. When you or a loved one is diagnosed with an illness cancer or diabetes, the financial aspects of the disease can be daunting. The person who is ill may not be able to manage the record-keeping and tracking required to get the best care for the least money. Ask a family member or trusted friend for help. And take heart that even if treatment options seem to be coming to an end, if you can hold on a little longer, new treatments are continually discovered that might help.

The potential for suicide is another vital issue. If someone in your family is persistently depressed or upset, avoid leaving them alone. Lock up your guns and lethal medicines and take the keys with you when you are out. A person who is chronically determined to take his or her own life may perhaps not be able to be deterred. But for a person going through a temporary hard time or in a chemical withdrawal period or on a new medicine, the desire may be short lived. Making it hard for them to physically act may buy time for a change in the circumstances that led to the desire. Things change, and when they do that person may no longer think about committing suicide.

Conclusion

So much paper, so little time. The “should-do’s” of life - from flossing to oil changes - overwhelm me. It’s hard to know where the priorities should be. In “Doesn’t Remind Me,” the late Chris Cornell sings about “the things that I've loved, the things that I've lost, the things I've held sacred, that I've dropped.” Try to hold on to the sacred parts of your financial life that help you stay financially healthy. (For more from this author, see: Personal Safety: Including the Costs in Your Budget.)

cr. https://www.investopedia.com/advisor-network/articles/4-mustdos-basic-financial-safety/

What Makes Financial Markets Work?

410 days. That’s all it took to create one of the seven wonders of the modern world. Over 3,000 masons, architects, steelworkers and skilled laborers worked together on the Empire State Building. For nearly 40 years it stood as the tallest building on earth, an undeniable example of efficiency, produced through the collective use of knowledge. It’s a simple concept that can be applied to just about any industry and it underpins the basic idea of why markets work.

The functionality of financial markets, like any market, is based on open and ongoing participation in an environment where decisions are made based on an opinion of value. Market efficiency isn’t a new idea. The concept of exchange for equal or greater value is enshrined in our DNA. For every buyer, there must be a seller and vice versa. In order to execute a trade, each side has to at least initially feel like they’re getting a good deal. So what makes markets efficient? (For more, see: What Is Market Efficiency?)

Decision Making: Groups vs. Individuals

At any given moment, a single person acting independently is capable of making an uninformed decision. Individuals are at a distinct disadvantage in the decision-making process because they often draw conclusions from their own limited set of data. Groups on the other hand, while still capable of exhibiting poor judgment, are less likely to make mistakes due to the benefits of collective brain power. You’ve probably heard the old adage a thousand times, “two heads are better than one.”

Financial markets operate on the same premise, acting at the will of millions of participants who make judgments through the active buying and selling of companies based upon massive quantities of information. In a sense, they’re voting with their dollars. The act of buying or selling effectively moves stock prices in one direction or another until it reaches an equilibrium. Therefore, the current price that a stock trades at should represent a good estimate of what that company is worth because it captures the sentiments of millions of buyers and sellers. 

The Judgment of the Masses is Hard to Beat

Markets don’t trade on yesterday’s information or even today’s. Alternately, they look toward the future, and trade based on the collective masses' interpretation of tomorrow’s value. So, if two heads are better than one, millions of heads are most assuredly better than two. This is the main reason why stock mispricings are so hard to identify. A speculator would have to believe that they know something that everyone else doesn’t already know about a company because the current stock price is a reflection of all voting participants, i.e buyers and sellers.

In a world where news travels at the speed of light, what are the chances of that? Even if they did know something - and for argument’s sake, let’s say a speculator was in possession of information that wasn’t already reflected in prices - what are the chances they can act on this information fast enough to benefit from any price change? In a 24-hour news cycle, it’s hard to keep much of anything a secret. As word spreads, the value of information is depleted by the second.

With instant access to breaking news in the palm of our hand, information has never been so readily available as it is today. Collectively, the way we interpret information empowers us to freely evaluate the value of things, including companies we choose to invest in. In most every instance investors should operate under the assumption that prices are fair and accurate. Markets work because they are a global reflection of what we think works. (For related reading, see: Financial Markets: Random, Cyclical Or Both?)

cr. https://www.investopedia.com/advisor-network/articles/what-makes-financial-markets-work/

The Key to Financial Independence? Saving Money

The ability to save money is one of the foundational principles for reaching financial independence. Good money behaviors, including spending habits and a commitment to saving, are a recipe for success.

While some people seem to save money intuitively and without a great deal of effort, others find it difficult or almost impossible to do so. What are the differences between people who can save without a struggle, and those who find it difficult to save money, and how do people who struggle to save overcome these difficulties? (For more, see: 10 Ways to Effectively Save for the Future.)

Your Upbringing Influences Your Spending Habits

It's never a good idea to blame our problems on others, but your upbringing exerts a great deal of influence on your spending habits. Typically, children raised in frugal households tend to save money more easily during their adult lives. The opposite holds true as well. Children of parents who spend impulsively or don't have a good hold on their personal finances tend to have difficulty saving money as adults. Although this is not always the case, it's worthwhile to look at the relationship that someone's parents had with money.

Another reason some people can't save is related to a phenomenon called learned helplessness. This is a state of mind that causes people to believe that there's nothing they can do to escape a negative situation, when the opposite is actually true. As it relates to saving money, learned helplessness often arises in people who have had consistently negative experiences with money.

Although learned helplessness can begin during childhood, it can come about from adult experiences as well. The more often someone experiences a failed attempt to save money, the more likely they are to believe that they're simply not capable of doing so. In other words, they begin to think that the inability to save money is just a part of who they are.

You'll notice that both of these difficulties are learned behaviors. While it's not always easy to reverse the trends established early in life, the good news is these patterns can be unlearned as well. The best way to begin unlearning these patterns is through practice.

4 Ways to Start Saving Money

1. Start by saving a small amount each week.
2. Track the progress you make, however small it is.
3. Set savings goals and acknowledge reaching them with a small reward.
4. Find a "financial buddy'" and establish a dynamic with them where you're mutually accountable and can encourage one another.

While these can help, the most impactful practice I have seen is removing choice from the equation as much as possible.

Automate Your Savings

Hopefully, you've gained some insights into the psychology of saving money from what you've read here. But it's equally important to understand that these insights are not enough to elicit the necessary changes. Self-awareness is necessary for making positive changes, but it's far from sufficient. Any real change results from constructive action.

The best way to develop a savings habit it to automate. With an automated savings plan, you'll be able to change your habits without even thinking about it. If you don't have a savings account, open one immediately and connect to your checking account. You should also sign up for direct deposit and arrange for a percentage of your paycheck to be deposited into your savings account automatically.

Set up an emergency fund and contribute a reasonable amount to it consistently. This will help you cover unexpected expenses and facilitate the next rule of automated savings. Don't touch the money in your savings account. Let it grow through good budgeting and proper use of your emergency fund. Last, ensure you are receiving your 401(k) match. This means contributing at least the maximum percentage that your employer will match, usually around 2%-3%.

Removing the need to choose to save by automating your savings is an easy way to establish the habit. For people who struggle saving money on their own, making the process automatic may be a necessity.

Don't be discouraged if you happen to be someone who struggles to save money. Simply acknowledge the problem and remain focused on the solution. A big part of this solution is automated savings. Start executing your automated savings plan today and you'll see a rosier financial future. (For more from this author, see: 3 Crucial Tips for Living Within Your Means.)

cr. https://www.investopedia.com/advisor-network/articles/saving-money-key-financial-independence/

5 Tax Planning Steps to Take Before the Year Ends

As we enjoy the final quarter of 2017 (yes the last two months of the year are here), I am sure you cannot believe how fast this year has gone by.  Keep in mind that the year is not going to slow down and there are several things you should be thinking about as the final days of the year pass.

Here are five things you should review in the next couple of weeks to ensure you are prepared for 2018 and filing your 2017 tax returns.

1. Take Caution Before Investing in Non-Qualified Accounts

This time of year mutual funds begin to announce their plans to distribute capital gains to their shareholders. The last thing you want to do is make a significant investment in a mutual fund and get hit with large capital gains after only owning the fund for a few weeks. Does this mean you should not invest in these types of accounts until January 1?  No, you can certainly invest between now and the end of the year, but you must be aware of the potential consequences. In addition, there are strategies you can use to invest your funds now and avoid these capital gains distributions before the end of the year. 

2. Review Your Non-Qualified Accounts 

Take note of your year-to-date capital gains or losses due to sales of investments over the course of the year. You may want to sell some of the investments that are not performing well in your portfolio (take the loss) to offset gains you currently have in your account year-to-date. Another option may be to take some gains in your account if you have a net loss for the year thus far. This type of review will allow you to put yourself in a better tax position for the year. (For more from this author, see: How a Step-up in Basis Reduces Capital Gains Tax.)

3. Check for Carryover Losses on Your Return

You may want to take some profits in some of your holdings if you have carryover losses reported on your return. The IRS only allows you to take a loss of $3,000 after you net out your gains and losses, so utilizing this strategy will allow you to capture a gain without tax liability to the extent you have a carryover loss.

4. Maximize the Benefits of Your 401(k) 

Although you can make IRA, Roth IRA and SEP IRA contributions in 2018 for 2017, your 401(k) contributions (in most cases) need to be contributed in the 2017 calendar year. You should compare the extent to which you have contributed this year vs. the maximum contribution allowed ($18,000 if you are under 50 years old, and $24,000 if you are over 50). You may want to increase this contribution towards the maximum if you are going to be in need of a tax deduction. (For related reading, see: Your 401(k): What's the Ideal Contribution?)

5. Pay Attention to Proposed Tax Reform 

There have been debates as to whether this reform will go through in 2017, be retroactive back to January 1, 2017, or will be passed in 2018. It is important to stay alert because we do not know what the tax reform will look like or what it will mean to you because it is so fluid at the moment. Pay attention because this may have an impact on your tax obligation for 2017.

It is important that the strategies above are reviewed and evaluated for your own personal facts and circumstances. Working with a fiduciary advisor and/or CPA can help ensure you are doing everything you should to be prepared for your 2017 tax filing and to mitigate the tax impact from your investments. 

(For more from this author, see: The Importance of Rebalancing Your Portfolio.)

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

cr. https://www.investopedia.com/advisor-network/articles/5-taxplanning-steps-take-year-ends/

Starting a Business? Embrace the Discomfort

Starting a company is uncomfortable. I think it should be done with a shot of whiskey, an extra strength Motrin and the red pill.

The shot of whiskey is the liquid courage to get you to take action. Taking action (even a small step) is scary and exciting at the same time. It is uncomfortable. You have to be comfortable not knowing what is going to happen. If you do nothing, nothing will happen – ever. If you do something, she just might say yes! (Or she could be dating an MMA fighter in which case you get your teeth knocked out, but what a story it would make). (For more, see: Work at a Startup? Here's How to Plan Your Finances.)

A good friend of mine is a marketing guy. A better way to describe him would be he is a marketing analytics genius. He had this great idea for a marketing analytics tool but kept coming up with reason that he couldn't do it. Every time we talked he thought of a new idea for it. Every time we talked he found a reason not to do something about it. He was looking for the perfect solution. The problem was he was never going to come up with a perfect data set in the real world to test his perfect solution. He needed to just start working on it and see where would it take him. His solution is going to have to adapt to the unknown of messy data. I bought him a shot and said shut up and do it. 

Avoid Paralysis by Analysis

The point is, it is easy to over analyze a situation to the point where you get paralysis by analysis. You are never going to have all the answers. If you really want to do this you need to be comfortable with an 80% solution and be prepared to adapt as needed. And that is uncomfortable. Get used to it. (For more, see: A Defined Benefit Plan for Small Business Owners.)

The Motrin (make sure it is extra strength) is to help with headaches. Don't get them, you say? You will. You will be like the absent minded professor. You will have so much information thrown at you about so many different topics you will only be able to speak coherent sentences in your dreams (assuming you take a sleeping pill as well because you'll constantly be thinking about your business. The best ideas seem to come around 3 a.m.). And by the way, you have to make decisions on a lot of information coming at you about a variety of different topics. Headaches. Don't get them, you say? You will. It's uncomfortable. Get used to it.

Highs and Lows

The red pill is a Matrix reference. In the movie, Morpheus offers Neo a blue pill and a red pill. When you take the red pill you stay in Wonderland and see how deep the rabbit hole goes. You get to know the truth. I reference the red pill here because you'll find out what you're made of when you start a business. The truth in business exposes you to a lot, just like in the Matrix. You will get knocked down – a lot. High and lows daily. It can be uncomfortable getting out of your shell. Get used to it.

Starting a company is uncomfortable. There is a fine line between excitement and terror. You must find comfort in the discomfort if you want to follow your dreams. If you are able to do this, it is an amazing experience. (For more, see: Choosing a Retirement Plan for Your Small Business.)

cr. https://www.investopedia.com/advisor-network/articles/103116/starting-business-embrace-discomfort/