Evolutionary Wealth -- Live Smart. Be Rich.

Be Careful, It Might Be Contagious

2010-08-31T19:21:00.000-07:00

I was thinking about my trip last year to New York. The flight out there was great, but on the return flight I had a two hour window to arrive in Chicago’s O’Hare airport to catch my flight back to Orange County. The plane out of La Guardia was delayed and I sat on the tarmac due to weather delays. Needless to say, I didn’t make it onto my connecting flight. United said that the rest of the flights were overbooked and would not be able to get me up in the air until morning. I opted to “sleep” in the airport. The airline wouldn’t provide me with a blanket or a pillow since I wasn’t on the plane and my luggage was headed to Orange County without me.

I watched the airport inhabitants turned from families to maintenance workers with mops and brooms. It was hard to find a quiet nook without the clang of rolling trash cans and vacuums. I settled on terminal 21. I laid there with my shoes on because as a child, I watched an ABC afterschool special, I feared that my shoes would be stolen like in a homeless shelter. I didn’t get much sleep and was pretty cranky until that morning.

In the morning, the first flight to Orange County was at 7:55am and I had a spot. As the time got closer to boarding, people started shifting about and looking at their cell phones and designer watches. As the boarding time came and went, people began to murmur. You could cut the tension in the air with a knige. Then one man turns to his wife and says “with how much we pay for plane tickets these days, you would think they would be able to look at a watch and take off on time.” Other people began complaining. Much like one domino falling in a row, you heard a chain of frustrated sighs across the terminal. At about 8:45am, they announced we would be boarding shortly. In anticipation, people stood up, crowded the doorway and began jockeying for position like horses approaching the finish line. Needless to say, people were now even more frustrated than before, because the contagious discontent washed over passengers like a tsunami. Being negative is contagious and spreads like cancer. Left untreated, it can be deadly.

As the time came to, those with small children were called to board. As my section was called I walked past the entrance and waiting to get to 17C. In first class was this toddler with headphones on watching a Disney movie on a portable DVD player. She smiled and giggled with carefree abandon. It was quite amazing to see passengers in front of me shift from disgruntled to happy at the sight and laughter of this young child. It served as a reminder that we are in fact contagious by association. We sometimes forget how much power we have to make someone’s day. The choice is yours, so choose wisely.

Wishing You Wealth in all its Greatest Forms,

Alex

A Reminder for the Way Forward

2010-01-25T23:44:00.000-08:00

On a brisk Sunday morning, I woke up weary. The weather was the rare kind in California where you can actually see your own breath. The sun was shining after nearly a week of nonstop rain, ridiculously dubbed “Storm Watch 2010” by all major media outlets. As I stepped outside to feed the fish in the pond, I noticed that a snail seemed to be trapped on a cactus. All the other snails had probably already hidden themselves away before dawn. Snails are like vampires, they only come out under the guise of darkness.

There is a natural inclination to look down or judge those who move slowly. Whether, you are in line at the grocery store, in line at the bank or driving on the freeway. We think about all the things we could be doing if we just had more time. The reality is that if we had an extra 5 minutes, we would need 10 more and if we had 10, we would surely need an hour. We are always going to find time for those things that are important to us. For me, life sometimes moves at such a frantic pace that I fail to enjoy the moments since I am so caught up in accomplishing the goal, only to set another goal. I have to constantly remind myself to enjoy the moments that make up my days. Each moment can be a defining one.

Just like the snail, we sometimes end up in “sticky” situations. Often times, we have no idea how we got there and have no idea or plan of how we are going to get through it. I have learned time and time again that by committing yourself to making small strides in the right direction, that you not only figure it out, but might learn something along the way. I wouldn’t give up one mistake for another five years of life.

The snail slowly navigated all of those sharp cactus spines and was eventually rewarded with freedom two hours later. I think that is eleven months in snail years. We have eleven months left in 2010, so let's live and play full out.

Wishing You Wealth in all its Greatest Forms,

Alex

Should You Pay off Your Mortgage?

2009-10-13T07:51:00.000-07:00

It's common that most people believe that you should pay off your mortgage before retirement. For many homeowners their mortgage is their largest expense. And it's also true that if they were able to eliminate their mortgage, that they would be able to reduce their need for income during their retirement years.

What people fail to see sometimes is that while paying off the mortgage does reduce expenses, it also eliminates a potential source of income. When you take funds from your savings and retirement accounts, you are removing funds from your capital base and compromising your ability to generate growth and income in your investment portfolio.

Paying off the mortgage definitely improves peace of mind, but sometimes the financial trade offs are just not worth it. Retirement accounts which are typically invested in mutual funds or other investments have the potential to grow at a much faster pace than real estate. In addition, once a home is paid off, it is difficult to tap the equity and reverse mortgages can be expensive.

Wishing You Wealth in all its Greatest Forms,

Alex

Problems with the Past

2009-10-05T09:00:00.000-07:00

Not all financial planning works as it is supposed to. Since I have joined the profession, I have realized that every time I read an article, pick up a book or attend a seminar…some of the information is wrong. Keep in mind that this is not always the fault of the writer or financial advisor, but it’s because the advice is based on an experience that no longer exists.

The tools and techniques that most financial advisors use tend to be based on the millions of retirements that happened before they become planners or even went to college. Years ago, it was rare that most would be able to go to college or graduate degrees. Instead of having spent years in post secondary education, they started working early and worked for years and years. They were taught to live within their means, cut out debt and try to make due saving the little that they earned.

The key here is to make sure that the education that the financial advisor has is updated with today’s realities, including taxes and inflation. There was a great article on Marketwatch.com that discussed how over the last 10 years, many investors actually lost money in the stock market. This is not to say that one shouldn’t invest in the market, but to be aware that there is a need for newer thinking for many investors.

Wishing You Wealth in all its Greatest Forms,

Alex

Top 3 Bank Fees that Sting

2009-09-14T15:18:00.000-07:00

It seems as if banks are on the offensive these days. The amount of interest they are earning on their deposits is way down, so the money has to come from somewhere. When you make a deposit at the bank, they lend out your money and get paid an interest rate and credit you a rate. For instance, they may receive 1.0% on your deposit and pay you 0.75% and they keep the difference…so in this scenario they are earning 0.25% on your money. Since rates are so low, savings accounts are paying very little and their income is way down.
For most banks, fee income is important during this economic downturn.

The top three fees that you should be aware of include:

1. Overdraft or Bounce Check. If you write a check for more money than you have in your account, you will be hit with this fee. This fee has been on a gradual rise and can range from $20-$30 per occurrence. The key is knowing what you have available in your account and balance your checking account regularly.

2. Bad Deposit Fee. If you try to deposit a check from someone and the check bounces, you are also charged a fee. It hardly seems fair, but only take checks from people who are good for the money.

3. ATM Fee. If you are using an ATM that doesn’t below to your bank, you are going to get charged to withdraw money. They always get me at the Orange County Fair, ball games and concerts. Make sure you get the money you will need before you head out or get used to paying to get at your money.

Wishing You Wealth in all its Greatest Forms,

Alex

Magic Rule of 72

2009-08-24T17:19:00.001-07:00

Have you ever wondered how long it would take your money to double? There is a guideline to figuring out the time called the "rule of 72." How you calculate it is by taking the amount of interest you are earning and divide it into 72. For instance, if you were earning 9% interest you would take 72 and divide it by 9.

72/9 = 8 periods

So at a compound interest rate of 9%, you would double your money in 8 compounding periods, which is usually measured in years.

Back in 1791 Ben Franklin left $5,000 to the city of Boston and instructed them to let it grow for 100 years. In 1861, it had grown to $322,000. During that year, they decided to build a school with most of the funds, but set aside $92,000 for 100 more years. In 1960, the $92,000 had grown to $1,400,000. It's unlikely that you will have 100 years to let your money grow, but the rule of 72 can help you see how long it would take money to double. Below is a sampling of interest rates and how long it takes to double.

Interest Rate	Years to Double
0.5%	144.0
1.0%	72.0
3.0%	24.0
5.0%	14.40
7.0%	10.286
9.0%	8.0
12.0%	6.0

Wishing You Wealth in all Greatest Forms,

Alex

Great Depression Revisited

2009-08-17T09:00:00.000-07:00

Some of the wisest individuals today are the seniors that witnessed the stock market crash in 1929. After the crash, panic stricken consumers feared that they would lose their life savings at the banks. So they went to the banks, became a mob and attempted to withdraw their money simultaneously. With so many people trying to make total withdrawals, it resulted in banks not being able to meet the cash demand. Some were able to retrieve all their money, while others didn't receive one cent. Many banks failed in the weeks and months that followed. Does that sound familiar? Subsequently, in 1933 the FDIC was created to protect consumers and instill public confidence.

Beyond bank failures, the general business climate soured while commercial and residential construction declined over 60%. Businesses failed since people didn't have any money to buy the goods and services that were once necessities. During these times, banks did very little lending since they had little confidence that customers would be able repay the loans with high unemployment. During this time of massive unemployment, there was no welfare or unemployment insurance.

If you speak to an elder who lived during this time, you'll soon realize that the recession that we are experiencing today is minor in comparison. It might seem like dark days, but we now have programs designed to protect us when we are unemployed, when we are hungry and protecting our hard earned money in the chance that a bank fails.

It's easy to take these things for granted and feel as if the government isn't doing enough. The United States is down, but it is NOT out. I am looking forward to the recession ending, yet will continue to treasure each learning lesson that it provides.

Wishing You Wealth in all its Greatest Forms,

Alex

How the Wealthy Really Live

2009-08-04T21:52:00.000-07:00

Since my youth, I have always wondered about the difference between the wealthy and those that struggle and live paycheck to paycheck. Later in life, I was surprised to learn that it was much more simple than I realized. Those that are wealthy don’t always make more than the average American. The biggest difference is how they live their life.

1. They follow the plan

A financial plan is the most important part of getting on the path to financial freedom. Too often, we set goals for ourselves and fail to reach them because we don’t stick with it. The wealthy not only have a plan, but they follow the program. When we are consistent with our actions, they become habits. If you could develop one positive financial habit a week, imagine where you would be in just one short year. Those that are wealthy are diversified in their investment plan and have implemented sound insurance, tax and financial strategies and are willing to put off instant gratification for long term results.

2. They are penny-wise

The wealthy who have worked hard and developed their prosperity over time have also developed an attitude of frugality. They realize that every penny invested or spent wisely will bring about more pennies, which will bring about dollars. Those that are truly wealthy have the ability to discern between a need and a want and spend their dollars accordingly.

3. They ignore social prominence

The world’s “average” millionaires live rather simple lives. They tend to own their houses outright and drive older cars. The poor tend to rent and drive expensive automobiles. Those that are truly wealthy are that way because of their habits. Often times, you would never know their wealth by the way they dress, drive or live.

Every person can become wealthy if they take the time to cement those habits that allow them to become that way. We all have choice in our lives and you can choose to live a life of prosperity or a life of lacking. Take the time today to build positive financial habits.

Wishing You Wealth in all its Greatest Forms,

Alex

Respect Your Moolah

2009-07-20T09:00:00.000-07:00

Before I begin, let me clarify. Money is not your master, but if you respect your money, you are much more likely to receive greater financial success. A lack of respect for money and often time's for oneself will lead to a lifestyle focused merely on the acquisition of "stuff." A wise philosopher by the name of George Carlin ranted about this. When we go to the local mall, the items that are available for sale are usually money pits. They are rarely income producing assets, and will start to lose value as soon as you walk out the door with them in your big brown bag.

When you purchase items at the mall, the thrill or shopper's high only last a few short days or weeks. It is a temporary feeling that is fleeting. The financial impact is mind blowing.

$1,000 dollars today invested and growing at a rate of 10% per year, would grow to $117,390.85. That is the awesome power of compounding interest. The first year, the interest is based on $1,000. In year 2, it is based on $1,010. As time progresses, you earn interest on interest.

I speak on this all the time, but nothing you buy today will bring you closer to a successful retirement and long term financial security. You need to respect your money and put the laws of interest on your side. Money is not everything, but it something that is needed to gain peace of mind.

Wishing You Success in all its Greatest Forms,

Alex

The Problem With Short Term Thinking

2009-07-13T09:00:00.000-07:00

Everyone wants to be independently wealthy some day. I define independently wealthy as not having to depend on someone else for financial support nor having to "work" to continue your current lifestyle. The majority of people fail in the pursuit of building wealth because they are looking at the short-term and fail to realize that building wealth is not a short race, but more akin to a marathon.

A cardinal sin of investing is focusing on fast performing "hot" stocks or funds without taking into consideration that higher returns often also carry higher risk. You will see people that otherwise make wise choices in every other area of their life "churning" their portfolios, which almost always leads to lower performance. The best advice that I can give is to work with a professional money manager or financial advisor that spends their days researching the investment market. Just because anyone can open a brokerage account, it doesn't mean that they are qualified to be a investment advisor. The goal should be an average of 8-12% annually, when you average the years over the long haul.

Wishing You Wealth in all its Greatest Forms,

Alex

Stocks 101

2009-07-06T21:16:00.001-07:00

When you buy stock in a company, you become an owner of the company. The stock is an asset that you expect to increase in value. The thinking is that if you invest in Coca Cola that they will be able to grow their business and be rewarded with a higher stock price. Investments can help you stay ahead of inflation. The things to be aware of is that when you buy a stock, there is usually a commission charged to buy the stock. When you sell the stock and it has increased in value, you will need to pay taxes on the difference between what you paid for it and what it was worth when you sold it.

Wishing You Success in all its Greatest Forms,

Alex

Life Expectancy Examined

2009-07-03T22:45:00.000-07:00

If you are in good health, there is a good chance that you may live to be about 75 if you are a man and 80, if you are a woman. In the 1900's, people tended to live only to around 47. By the 1950's life expectancy had grown to around 68 years old. On average, those born in 2005 will live to nearly 78 years old.[cdc.gov]

With the strides and advancements in biology and medicine, life expectancy continues to grow. Some scholars belive that the human body is built to last many years and we have just begun to uncoverthe tools to optimum life span. Imagine living to the age of 150, or longer. Many animals live six or seven times their age at maturity.

These are sobering statistics since most people create their financial plan starting at the age of 65. With medical advancements, it's possible that many will be retired for more years than they spent working. It's key that you create a plan that is based on the possibility of an extended retirement.

Wishing You Wealth in all its Greatest Forms,

Alex

Financial Check Up Reminder

2009-06-16T10:53:00.000-07:00

We are now nearly halfway through the year and it’s a good time to take a look at your financial goals. In life, it’s easy to get caught up in the day to day and put financial plans on the back burner. But here are two thoughts.

Take a good long look at your financial goals and see if they have changed. Make sure that when you put together a plan it is both actionable and quantifiable. When a plan is actionable, it is something that you can actually do. For instance, an actionable plan is saving a certain amount of money per month. A non-actionable plan would be winning the lottery. A quantifiable plan is one where you can measure at the end of the year whether or not you have succeeded in it. Let’s say you were to put away $200 a month for the remainder of the year. You should have $1,200 if you save for July, August, September, October, November and December. If you don’t have $1,200 on December 31st, then you haven’t reached your goal. Take the remainder of the year to work on consistent saving, budgeting and investing methods.

If you were planning to make contributions to your favorite charity, there has never been a better time to do it. Charities that support the welfare of the local community are in a recession also. In a time where community services are much needed, charities have to get by with much less. Plus, it’s also a tax deduction you will be able to take for 2008.

Start with those two and check back here for more ideas soon.

Wishing You Wealth in all its Greatest Forms,

Alex

Is Your Mortgage "Under Water?"

2009-06-12T10:05:00.001-07:00

The words “under water” have taken on new meaning as many homeowner’s who purchased a home in the last few years have experienced the value of their home dropping below the balance remaining on their mortgage.

There is good news with Fannie and Freddie, the government sponsored companies that buy and insure mortgages and provide liquidity so that new loans may be made. If your loan is held by either or the FHA (Federal Housing Administration), you may be able to refinance your property up to 105% of its current appraised value.

The possibility is that you may be able to get a lower interest rate or reduce your monthly payments. If you quality, you may even move from an adjustable rate to a fixed one. Owner occupied properties up to four units, including single family residences, condos and rental properties are all potentially eligible for this. [Bankrate.com]

To find out more about the eligibility, go to the government website here.

Wishing You Wealth in all its Greatest Forms,

Alex

Credit Card Companies Complain, but Consumers Rejoice!

2009-06-02T10:46:00.000-07:00

President Obama put the pen to paper on May 22 and made changes to the way that credit card issuers do business. The changes were “common sense reforms designed to protect consumers.” Advocates are happy, but banks have already begun campaigning that the new reforms may hurt cardholders in the long term.

Let’s take a look at these changes. It’s called the Credit Card Accountability, Responsibility and Disclosure Act, but has been named “CARD” for short…a very fitting name. Some changes will occur in 2010, while others could happen in 90 days.[SmartMoney.com]

• No Surprise rate increases
If your card company wants to raise your rates, they now have to let you know 45 days ahead of time and let you know why in writing.[LaTimes.com]

• Bills in Advance
Your monthly bill has to be mailed at least 21 days before your payment is due. [SmartMoney.com]

• Restrictions on retroactive rate increases
The rate on an existing balance can’t go up unless you are at least 60 days late on a payment. And even if you are 60 days late, your credit card company has to restore the prior rate if you pay the minimum for the next 6 months.

• On time Redefined
If you pay your credit card before 5pm EST it will be considered paid on the same day. And in the chance that your payment due date falls on a weekend or holiday, you cannot be subject to late fees because they weren’t open.

• Fight Higher Rates.
If you are paying different rates for different kinds of transactions, you can now apply any payment above the minimum to the highest rate balance.

• Additional Protection for College Students
College students will be able to get credit, but within reason. There’s little reason for college students to graduate with loans and high credit card balances, which is a double whammy to getting started on the right food. Account limits will be either 20% of their annual income or $500, whichever is greater. The goal is to make this market less attractive to issuers and reduce the amount of exploitation.[SmartMoney.com]

• Protecting Future Generations
The new legislation bars companies from issuing cards to most people under age 21. Those younger than 21 will only be able to use a credit card under one of the following conditions: They can prove they have the means to pay the debt (or their parent or guardian promises to pay it off if they default).They are emancipated minors. They are designated secondary cardholders on a parent or legal guardian’s account.[CNBC.com]

• Universal Default Ending. This is the practice where if you make a late payment to one credit card company, they all get to raise your rate. Under the new plan, if you make a late payment to one, others cannot hike your rate and bury you.[SmartMoney.com]

• Over Limit Fees by Exception. Your account cannot be put over the limit without your advanced okay to do so. [SmartMoney.com]

Credit card companies are staunchly against these changes because without the extraordinary amount of fees, there will be less revenues. I believe that going forward, there will be less rewards and new annual fees.

Whether or not these changes help America become more financially independent remains to be seen. But I believe every bit helps and believe that credit card companies will need to also take a pay cut during these difficult economic times.

Wishing You Wealth in all its Greatest Forms,

Alex

Too Young For Life Insurance? Probably Not.

2009-05-25T08:23:00.001-07:00

It’s a common myth that you needn’t invest in life insurance early in life. That’s actually not necessarily true. The reality is that getting a life insurance policy early may pay huge dividends when planning for the future. By comparison, few people acquire life insurance coverage between 18 and 45, but there are many reasons to get life insurance during this time.

The most important question is “Are supporting loved ones whose livelihood depends on your income?” If the answer is yes, then you should be looking at life insurance to guarantee their future.

Commonly, people wait because it is believed that life insurance is only needed later in life and want wait until expenses decrease. Life insurance has been long viewed as only for “old people.” When you are 30 or 35, you focus on the long life ahead of you. Financially speaking, it may make sense to acquire life insurance coverage now.

1.Your health is in great shape. Most shop for a life insurance policy in the 50’s and 60’s. At that age, your health may be different and it may be more difficult to qualify for affordable life insurance. A multitude of things can cause premiums to spike, so why not get the coverage you will need someday, while you are in your prime.

2.The cost will be a lot less. Life insurance premiums are based upon your current age and life expectancy. Since you are younger, the premiums will be less since they will be based on a longer life expectancy.

Some studies have cited that premiums for standard risk-term life insurance policies have dropped as much as 50% between 1994 and 2007. This can be credited to the fact that people have been living longer. Even cash value policy premiums have decreased an average of 4% per year since 2000.

If you are single, you may also want to look for a term policy that can be converted to permanent coverage at a later time. It’s a way to protect your insurability, even if your health changes.

As we all progress though different stages of life including marriage, having children and retirement, our needs for life insurance change and typically increase. If you are considering life insurance, your timing might just be perfect.

Wishing You Wealth in all its Greatest Forms,

Alex

Bank Stress Test Results - Does Your Bank Stack Up?

2009-05-18T09:00:00.000-07:00

So the numbers are in. The Federal regulators have published the valuations of the nation’s 19 largest banks. With new information, comes new questions. Which banks are adequately capitalized and which need to raise new capital? And the billion dollar question: where might that new capital infusion come from?

The good news is that nine banks don’t need more capital. The fortunate are: American Express, BB&T, Bank of New York Mellon, Capital One Financial, Goldman Sachs, JPMorgan Chase, MetLife, State Street and US Bancorp. The government believes that these banks have enough capital available to weather the storm.

The bad news is that ten banks need to raise new capital or raise new reserves. These banks include: Bank of America, Citigroup, Fifth Third Bancorp, GMAC LLC, KeyCorp, Morgan Stanley, PNC Financial Services Group Inc., Regions Financial, SunTrust Bank and Wells Fargo. You will recall that a good number of these banks were on a business acquisition shopping spree less than 12 months ago.[Businessweek]

The government has given the banks that need new capital one month to come up with a plan and six cumulative months to raise it. June 8 is the plan deadline, with November 9 being the deadline to have the new capital. It’s possible that capital may be raised by converting government debt into private stock.

The Fed checked to see if the banks would have at least 6% of assets in Tier 1 capital and 4% in common equity by calendar 2010. Tier 1 capital includes common shares, majority of types of common stock and TARP funds.[Sfgate.com]

The drawing board for the banks that need to create a capital cushion may include:

1) Sell company assets
2) Raise new common equity from new or current shareholders
3) Applying earnings beating analyst expectations toward new capital
4) Converting preferred shares into common stock to eliminate preferred dividends

The government has instructed the banks to seek capital from the private sector first, before asking for federal money. The Treasury Secretary Timothy Geithner believes that the majority of banks needing additional capital will be able to find it in private sources.[Bloomberg.com]

Stress tests are nothing new and have occurred for years, but are typically kept private. In these difficult times, the government is taking measures to bolster the public faith in banking. Some analysts believe that the Fed is just posturing since we have still unresolved issues with the toxic assets on the balance sheets of these banks.

On the other hand, the stress test announcement was received well by Wall Street, who feared bank nationalization. The results were not as dire as some investors had expected. In addition, more economists believe that the economy will begin to improve by 2010, which should reduce bank stress.

Wishing You Wealth in all its Greatest Forms,

Alex

Refinancing Realities

2009-05-11T09:23:00.001-07:00

Mortgage companies have flipped the switch and their commercials seem to be dominating the airwaves once again. With the rates sitting around 5%, there are reasons to cheer, but the reality is refinancing is now a whole different ball game.

Rates are at 40 year lows, but qualifying for that rate can be a real problem. Unlike during the refinance boom, when all you needed was a paycheck stub and a heartbeat, today's mortgage process is more difficult. Lending guidelines are stricter today since banks are still dealing with foreclosures tying up their capital.

At the current time, to qualify for the best rate, you will need a credit score of 720 and 20% equity or more. This applies to single family residences that are owner occupied (you live there). You can also "buy" down your rate by paying a discount point, which equals 1% of your loan. Paying a discount point usually lowers your rate by 0.25%.

You would be smart to contact your local credit union, bank and trust mortgage broker. The credit union and bank will typically work off of specific in house guidelines, while the mortgage broker may be able to locate you the best rate/fee combination for your situation. Mortgage brokers typically work with multiple lenders.

If you are successful in refinancing, you may capture the lowest rate of your lifetime.

Wishing You Wealth in all its Greatest Forms,

Alex

The End of Recession?

2009-05-04T08:30:00.000-07:00

It appears that there has been some healing in the recent few months in some economic indicators: new and existing home sales, wholesale and factory orders, consumer spending and more positive reports from the Fed. And the stock market has proved to be resilient as of recent days with corporate earnings coming in better than expected. On the flip side, the unemployment rate is rising, March retail sales came in low and foreclosures are on the rise.

Ben Bernanke in Washington believes that economic declines are beginning to slow. And President Obama’s top advisor, Larry Summers, sees a “more balanced picture.” Away from Washington, Martin Feldstein of Harvard stated that “things are falling, but they are falling a little more slowly, but that doesn’t mean they will turn around anytime soon.” The forecast out of UCLA states that the recovery will be in 2010.

Recently, the Wall Street Journal polled economists and on average, they believe the recession will end in the third quarter of 2009. Whether the recovery is in 2009 or 2010, make sure that your assets are invested for long term success.

Wishing You Wealth in all its Greatest Forms,

Alex

Layoffs and 401K's

2009-04-27T09:30:00.000-07:00

As this year continues to see layoffs, I have been receiving more questions about 401k’s and what happens to them if you’re laid off. Basically, there are three options for your 401k. One is more flexible than the other two.

The first option is that you could leave your 401k with your former employer. The funds that you have contributed and a portion of your “company match” will remain invested in your selected portfolio mix. The financial firm will continue to send quarterly statements and your funds will continue to grow tax deferred.

The downside to leaving your money with your former employer is that you may have reduced flexibility. Typically, in employer sponsored plans, you will have limited investment choices, higher fees and limited access to make changes. Often times, people that have moved around from job to job have left a trail of 401k’s that are difficult to keep up with since they are with so many different employers and financial institutions.

Your second choice is “cashing in” your 401k. As I have mentioned in my previous posts, this should only be a last resort. Often times, the financial institutions will require withholding of 20% for potential tax liability and you may incur a 10% IRS penalty if you are under the age of 55. Plus, the removed funds will be taxed as ordinary income.

The third option is “rolling over” your money into an Individual Retirement Account (IRA). Typically, this is the best choice. There is no tax penalty when you rollover an IRA or do a trustee-to-trustee transfer. You can now benefit from total control of your money, continued tax-deferred growth, and more investment choices.

I am a big fan of having greater control of your money. If you would like more information on these choices, please email me.

Wishing You Wealth in all its Greatest Forms,

Alex

Should I Pay or Should I Go?

2009-04-21T20:11:00.000-07:00

Not everyone should pay off their debt first. Often times, business owners or professionals have some debt to finance their businesses. The long range goal should always be to build wealth and sometimes it’s okay to have some debt.

There is such thing as “good debt.” If the debt allows you to create income, it can be considered good. For instance, a rental home may have a mortgage, but it allows you to create a passive income from the rental payments. Bad debt is credit cards that have compounding interest rates and don’t provide any opportunity to income.

When you will be carrying a debt for medium to longer term, weigh the interest rate on the debt against your income growth and potential investment returns over the term of the debt. If the rate of interest associated with the debt appears to outpace your growth income and returns, then you will want to pay that debt down as fast as possible. Your debt growth rate should not be higher than your average income growth rate. Look at your primary job and all other sources of income when calculating this figure.

By paying off “bad” debts and reducing the amount of accumulation of new debt will improve your FICO score and lead to lower interest rates on credit cards and other loans. A good FICO score allows you to take steps closer to financial freedom.

Wishing You Wealth in all its Greatest Forms,

Alex

The “B” word…Budget

2009-04-07T19:59:00.000-07:00

No one likes to talk about budgets…well almost nobody. If a budget is sensible, necessary and even desirable, why do we hate them so much? The reality is that making a budget or staying with one seems to contradict our instant gratification that is part of our culture. We certainly don’t want to miss out on the latest fashions, electronics or the hippest restaurant, but a budget is as important to being successful financially as oxygen is to breathing.

A budget forces you to look at what you spend. A good budget will be able to break down, to the dollar, how much you spend on clothes, food, movies, etc. Most of us don’t like the restrictions that budgets pose, but we would do well to follow the quip “a penny saved is a penny earned.”

It will take a bit of time to set up a good budget, but you should start by understanding where you are spending your hard earned dollars now. Save all of your receipts, bank statements and credit card bills and put them in a pile. Also, you will want to either use an Excel spreadsheet or buy a software solution such as Quicken or Microsoft Money. The other option is going online to Mint or Budget Tracker and joining for free.

By getting started, you will be taking one of the first steps that will help you cement your financial future.

Wishing You Wealth in all its Greatest Forms,

Alex

Truth about the "Rapid Refund"

2009-04-01T09:47:00.000-07:00

For most Americans, instant gratification is their mantra…even in tax season. While driving around this year, I noticed signs on every corner for “Rapid Refund.” I spent some time researching and speaking with a number of tax accountants. A “Rapid Refund” is a short term loan that is secured against your forthcoming refund. The catch is that all loans come with costs, and hefty ones at that. These refund anticipation loans (RAL’s) come with an application fee and an interest rate from 36% to 200% or more. On a refund of $2,000, the cost can be upwards of $100. It’s estimated that in the 2006 tax season, 9 million taxpayers used a RAL. Additionally, RAL’s cost the working poor an estimated $500 million per year. The IRS does not regulate these loans.

To expedite your refund, you can do an electronic filing and have the refund direct deposited to a bank account. Within 10-14 days, your refund is in your account. The way I see it, you have already waited 365 days to receive your tax refund, so what’s another 14 days? In order to correct this problem for the next year, you can contact your Human Resources department and update your W-2 income withholding. This will give you more money in each of your paychecks throughout the year. Plus, the government is no longer receiving a free loan until you file your tax return.

Wishing You Wealth in all it’s Greatest Forms,

Alex

Don't Touch that 401K

2009-03-26T12:23:00.000-07:00

Yes, it's official that we are in a recession. These are certainly difficult times, but today I want to look at the pros and cons of borrowing from your 401(k). The spoiler alert is that there are far more cons than pros.

The pros are that you have access to money if you are in a tough spot. Some 401(k) plans allow you to borrow up to 50% of your vested account balance.

The cons are that some 401(k) plans don't even allow for loans. taking out a 401(k) loan may cause you to stop contributing to your 401(k) altogether, since you will be paying it back with a portion of your paycheck. You are essentially borrowing from Peter to pay Paul. If your company matches a portion of your contributions, you will lose out on that as well. If you cannot afford to pay it back, it becomes a taxable distribution with penalties if you are under the age of 59 1/2.

I recommend that you only borrow from your 401(k) as a very last resort. In addition, most people have suffered dramatic losses in their 401(k), so the amount that you will be able to withdraw is less today than it has been in the past.

Your 401(k) is one of the building blocks to a successful financial strategy. Treat it well and it will treat you well.

Wishing You Wealth in all its Greatest Forms,

Alex

Don't Miss the IRA Deadline on April 15.

2009-03-11T22:21:00.000-07:00

If you haven’t done so yet, be sure to make your 2008 IRA contribution before April 15! With stock prices at the lowest prices in over a decade, fully funding your IRA for 2008 (and 2009) could mean a great head start in saving for tomorrow.

I know that times are difficult. Most people buy high when market hype is at a peak, but refrain from investing when things seem difficult. But remember that the goal is to buy low and sell high! If you have an IRA, make sure to fully fund it. If you don’t have an IRA or Roth IRA, there is no better time to get started.
Don’t forget that you have until April 15, 2009 to make your contribution for 2008. If you have maxed out for 2008, you can start chipping away at 2009. Cross it off your to-do list. The current recession that we are experiencing will not last forever and chances are that someday in the future, you will be glad that you contributed when you did.

Wishing You Wealth in all its Greatest Forms,

Alex