Financial Planning Begins with Spiritual Values (2006-12-25)

Financial Planning Begins with Spiritual Values

(2006-12-25) by David John Marotta

Many people assume that financial planning primarily deals with cold hard cash. Most financial planners would disagree. Financial planning is the process of aligning your financial choices with your life passions. And although financial planning can tell you how to accomplish your goals, it cannot tell you what your goals should be. Values transcend the cash and the numbers.

The financial planning process helps families prioritize their core values and structure their finances to better meet their goals. Balancing a family's financial goals and making the financial choices according to those values is at the heart of financial planning. Financial woes often come, not from a lack of income, but from a failure to live according to one's desired values.

Our culture seduces us into believing happiness can be packaged into a commodity that can be wrapped and put under the tree. Consequently we spend money on fleeting goods and services that jeopardize the long term goals that could have provided a deeper fulfillment.

Financial planning begins with life planning. Everyone faces the challenge to purposefully decide what they want to accomplish with their life and then structure their finances to help them reach those goals. Individuals who have given some contemplation to the spiritual side of life are much closer to being able to provide an answer to the meaning of their life. Without some spiritual sensitivity it is difficult to even formulate the right questions.

One common temptation is to judge our well-being not by what we have, but by how much we have in comparison to others. Today's borderline poor live as well as the upper-middle class did a few decades ago. But, that does not stop them from feeling poor. Luxuries ultimately disappoint us as we become used to the higher standard of living. But the luxury loses its luster and the happiness it brings is short-lived.

The old saying is true: Money can't buy happiness. Families earning $25,000 a year spend money as though they were trying to keep up with those making $50,000 per year. While those making $50,000 per year often go into debt trying to live like those making $100,000. For many families, the lure of "Joneses" wins out over deeper values that require the foresight, discretion and patience of saving.

Financial decisions tug a lot at the conscience. Sometimes the battles of the soul grow into the all out war of a sleepless night. It is difficult to live life with your head, your heart, your words and your actions all in alignment. When they are not, we live in the pain caused by misalignment. In that regard, comprehensive financial planning touches our soul.

It is difficult to write about family financial values without sounding religious and moralistic, and that's the point. Ultimately, our financial decisions betray our practical theology. The process of financial planning brings families to decide which values they want to live by, and causes them to adjust their daily monetary decisions to fit those values.

To illustrate, imagine a female executive working for a biotech company earning a six figure income. Her desire and passion though, as she has grown to see, is to become a park ranger by age fifty.

Focused on her goal, she makes financial decisions in harmony with her values. She keeps her lifestyle expenses low to provide her the freedom to save and invest the difference so that she can reach her goal. Simultaneously, she takes the appropriate continuing education classes in the evenings to make her an attractive candidate for the position.

Financial planning is ultimately about gaining the maturity and the freedom to do what we think we should be doing with our lives. The goal is a profoundly spiritual goal even when the financial planning to support it is mundane.

This season can be either a time of spiritual reflection or a time of senseless consumer spending. For most families it is a mix of both! Take some time during this holiday to ask what you believe you should be doing with your life. Then ask how you can structure your finances and your career to support that calling.

from http://www.emarotta.com/article.php?ID=210

Planning for a Funeral (2006-12-19)

Planning for a Funeral

(2006-12-19) by David John Marotta

Funeral expenses are often a family's fourth largest expense after paying for a house, college expenses, and a car. The average funeral costs between $5,000 and $7,000, but it's not uncommon for funeral expenses to top $10,000. Planning a funeral may be an uncomfortable task, but, planning early will save you or your family members from having to make difficult decisions during a time of bereavement. Last-minute planning often leaves family members feeling pressured to spend more than they should in order to demonstrate their love for the departed.

When my mom was dying I went with my father to help make arrangements. Having me along helped him through the painful process of planning for an event we all wanted to deny would actually happen. Having two of us made it easier to see that a $12,000 casket wasn't really the best decision.

Bringing a friend can help you go through the process of selecting funeral products and services. And, if a friend of yours is faced with planning a family member's funeral, you can provide great support by going with them and helping them stay within whatever budget they have set.

It is always good to get the list of prices for at least three different services. The Federal Trade Commission requires all funeral homes and cemeteries to provide you with a free itemized price list of their services during your visit. My father and I visited a few different funeral homes in order to find one that fit with our family's purpose in holding a memorial service.

Having your own values in mind during the process can help avoid unnecessary expenses. My own philosophy is that a funeral is all about gathering friends and family to remember the loved one's life. The products and services of a funeral home should be relatively plain so as not to distract from that focus.

We do not recommend that our clients purchase prepaid funeral services. Pre-paid arrangements are expensive and impossible to get your money back out of, if you change your mind or move. Setting aside a certain amount of funds for funeral expenses is the best option. Money properly invested will appreciate faster than inflation and provide better financing for funeral services. Alternately, you can purchase a small life insurance policy to cover funeral expenses. Only if you are purposefully trying to spend down an estate for some reason should you prepay for funeral expenses.

Similarly, family burial plots rarely work as planned. Parents often want to be buried near their children while children often want to be buried near their own children.

Where you are buried can be especially tense if you have been remarried. Children often want to reunite mom and dad in death while your current spouse may have other wishes. Communicating your love for everyone as well as the reasons for your decision can help avoid those tensions being combined with the powerful mixture or grief and anger.

If you want to make planning your funeral easier for your surviving family, draft one page that gives your wishes. Oral or written instructions about burial aren't legally binding. They are only intended to make things easier for your family, not harder. Be sure to include instructions regarding the following important decisions:

Preparation and care of the body. Do you want your body to be buried immediately after death, embalmed and buried, cremated, or donated to science?

Place of burial. Do you have a cemetery or burial plot? Where would you like a service? Who would you like to perform or speak at the memorial service? Do you have favorite music or flowers that you would like included in the service?

Communication with friends and family. Who should be contacted regarding your death? What would you want included in your obituary and headstone? Is there a charity where contributions should be made in your name?

Important documents. Where is your will? What is the contact information of your executor, lawyer, CPA, financial planner? Do you have an inventory of your assets that is kept up to date annually? Where is your safe deposit box and key? Where are all the important documents such as birth certificate, marriage, divorce, prenuptial, deed, business, insurance, financial, social security, pension, and benefit records?

Keep these instructions handy, not just sealed away with your will or in your safe deposit box. They should be reviewed annually with family members along with your estate plans. More information can be found online at www.aarp.org or www.fpanet.org/public/tools/lifeevents/.

from http://www.emarotta.com/article.php?ID=209

Belle Didn't Really Love Scrooge (2006-12-11)

Belle Didn't Really Love Scrooge

(2006-12-11) by David John Marotta

About this time each year I re-read "A Christmas Carol," by Charles Dickens. By far, the saddest portion of the book is the scene where the ghost of Christmas past forces Ebenezer to relive the day his fiancé breaks their engagement and his heart. While we often assume that Ebenezer did not love Belle, the sad truth is that Belle never really loved Scrooge.

Belle's financial personality is what Bert Whitehead, financial expert and author, describes as a "Bon Vivant" in his book "Facing Financial Dysfunction." In his book, Whitehead maps financial personality on two different axes.

The first axis measures people's tendency toward greed or fear. Belle, like all Bon Vivants, tends to be more fearful, while Ebenezer tends to be more greedy. The second axis measures an individual's tendency to save or spend. Ebenezer tends more toward saving. And although Bon Vivants are more balanced in this respect, the balance they achieve is not necessarily a healthy thing.

Bon Vivants are not spendthrifts or shopaholics, but nor are they misers. They don't spend money on everything; they only spend money on themselves. Feeling insecure and somewhat fearful, Bon Vivants keep their spending personal.

When we first meet Belle, she is described as a fair young girl in a mourning-dress. Mourning-dresses were worn only by the most fashionable of young ladies. Mourning was an expensive activity. It was as wasteful as it was fashionable. Therefore, it provided a perfect litmus test for the rising middle class to show how in sync they were with royal attitudes. Belle, like most Bon Vivants, finds it easy to spend money on herself.

Mourning etiquette filled the women's magazines of the day and women competed to show their ostentatious devotion. Normally, it lasted two and a half years. During the first year and a day, they wore full mourning dress with coverings of black crape. Accessories such as mourning veils, brooches, buttons, beads, fans bonnets and handkerchiefs helped to complete the fashion statement. During secondary mourning, the pieces of crape were gradually removed and replaced with lighter ribbons until in half mourning non-black clothes of subdued shades could be worn.

Bon Vivants often have closets full of clothes, many of which have often never been worn. They are sharp dressers and reward themselves by shopping. In addition to fashion, Bon Vivants love to own the latest technological devices. They love to shop online and will purchase anything that saves them time and effort. When status is involved, they buy only the top-of-the-line brand names.

Bon Vivants are also driven and successful workaholics. They work long hours and usually make a lot of money. Even in estate planning they are likely to leave sizable donations to foundations and projects bearing their name. Bon Vivants are some of the few people who, at the end of their lives, actually wish they could have spent more time at the office. Their spending is at least partly a reward for their hard work.

Belle tells Ebenezer she expected that they could "improve our worldly fortune by our patient industry." She breaks her engagement with Ebenezer because although she has been patient, her worldly fortune has not improved. She says she is "fraught with misery" and dwells on these thoughts often.

Her great fear is that her love does not have enough worth of value in Ebenezer's sight. She wants him to continually seek her out and win her. And, she makes the mistake of judging his love for her on a monetary basis. Belle accuses Ebenezer of loving money more than he loves her. The truth is that she loves money to be spent on her more than she loves Ebenezer.

This preoccupation with money leads many Bon Vivants to keep emergency cash stashed around the house in places known only to themselves, such as a secret cookie jar or a personal sock drawer. Investments don't make them feel secure. Wealth has to be close at hand and personally accessible in order to satisfy their insecurities and alleviate their fears.

Ironically, Belle accuses Ebenezer of fearing the world too much because he risks, earns, and saves. But, it is actually she who has the greater fear and insecurity. She feels she has been slighted, and a Bon Vivant cannot stand being slighted.

Bon Vivants seek accolades of honor and prestige. Social standing and work standing matter a great deal. Because of this, Bon Vivants are easily offended. Social or political slights are viewed as court intrigue and treachery. A Bon Vivant's motto is: "Don't get mad, get even."

Belle isn't mad while she is breaking her engagement with Ebenezer, but she couldn't be more cruel. She places all the blame on Ebenezer's lack of love for her, though the only acceptable proof of his affection would be a very expensive token of his esteem. She makes the mistake of measuring how people value her by what they spend on her.

She is so out of touch with Ebenezer that she claims any pain she is causing him will be very, very brief, and he will dismiss it gladly in a short time. She couldn't be more wrong. Even after many years, it still tortures Ebenezer.

It is easily argued that the pain caused by Belle calling off their engagement is the root of Ebenezer's personality faults. Her rejection of him leaves him shattered and triggers his withdrawal from society. Had Scrooge married Belle, his diligent work would have been praised as faithful provision instead of as cold hearted greed. As the story continues, the man Belle ultimately marries fits better Belle's view of money.

We see Belle's husband in the next vision when he arrives home from work. He knows better than to arrive empty handed and is laden with Christmas toys and presents. He is greeted by his large family with such an onslaught that they scale him with chairs, pick his pockets, and carry away his brown-paper parcels. The multitudes of children grab his cravat, hang on his neck, pommel his back, and kick his legs - all to tear into his packages.

Belle has clearly set the financial tone of the family.

If the story were re-told, Belle's Christmas ghost would have shown her the starving children of Vanity and Egotism. She needs to learn to measure wealth by what is saved and invested, not what is spent on her. But more importantly, she needs to learn that true love is more concerned about working together to reach your financial goals than about selfishness, anger, hurt, and resentment.

I feel sorry for Ebenezer, but in the end, Belle didn't deserve him. My regret is that Scrooge never found someone like Mrs. Fezziwig who would have loved him enough to draw him out and remind him of the real purpose of his wealth.

The tendency toward measuring our status and prestige by what is spent on us isn't limited to Victorian England. It is the defining yardstick of our times. Don't be like Belle. Don't let your financial attitudes devastate the lives of family members who love you.

from http://www.emarotta.com/article.php?ID=208

Tax planning tips for 2006 (2006-12-04)

Tax planning tips for 2006

(2006-12-04) by David John Marotta

Making time for year-end tax planning during the busy holiday season may sound like bad timing, but it may save you bundles of cash come April 15th. However, in order to make full use of these tax-saving tips, be sure to visit your tax professional before year's end. Once January 1st rolls around, there's little else you can do but pay-up.

Be prepared for AMT.

First off, keep an eye on the Alternative Minimum Tax. Initially developed to ensure the wealthy were shouldering their share of the tax burden, the Alternative Minimum Tax is a parallel tax system which flips many of the standard tax rules on their head. Although recent legislation will mean fewer Americans get hit with AMT this year, before you begin tallying your deductions, determine if you will be paying AMT. Many of the deductions you plan on taking may actually drive you into the AMT trap.

Even if you didn't pay AMT last year, you may get hit with AMT if you earn between $200,000 and $500,000. And of course, if you were hit with AMT last year, you will probably be hit harder this year. Consult with your tax professional before the end of the year to determine the best tax plan, especially if you think you might have to pay AMT.

Plan your deductions.

If you don't fall into the AMT trap, manage your income and deductions to your benefit. If you expect to make more money next year, you may want to accelerate income into this year to take advantage of your lower tax bracket. Defer your deductions until next year to offset some of next year's tax burden.

Do the opposite if you expect to earn less next year. Defer income into next year and accelerate deductions into this year. For example, ask your employer if you can receive your bonus in January. To increase your deductions, make your fourth quarter estimated state tax payment prior to year's end, and use it as an itemized deduction this year.

Offset capital gains with losses.

Next, check your capital gains. Before January 1st rolls around, you may want to offset your capital gains by realizing some losses. Depreciated securities may not hurt you as much as you think. Net losses of up to $3,000 are deductible against ordinary income. Additional losses can be carried forward in future years.

Save for retirement.

If you have extra cash on hand, consider making a last-minute contribution to your 401k, 403b, or 457 plans. Contributions to these plans directly reduce your taxable income. These employer-sponsored plans allow you to defer up to $15,000 this year. If you are over age 50, you are also eligible for a $5,000 catch-up contribution.

You may also be able to make deductible contributions to your IRA, even if you currently participate in an employer sponsored retirement plan. This year, contribution limits are $4,000 with an additional catch-up contribution of $1,000 if you are over 50. These benefits are phased out between $75,000 and $85,000 for couples filing jointly ($50,000 - $60,000 for individuals). Keep in mind that contributions to your IRA can be made up until tax day.

If you do not participate in an employer-sponsored retirement plan, contributions to your traditional IRA may be tax deductible, regardless of your income level.

And don't forget, contributing to an employer-sponsored retirement plan or to an individual retirement account may make you eligible for a saver's tax credit in addition to reducing your taxable income. A credit of 10%-50% (capped at $1,000 per person) is given for contributions to a retirement plan. The lower your income, the higher your tax credit. Taxpayers filing jointly with an AGI of $50,000 ($25,000 for individuals) or less are eligible.

Fund your HSA.

If you contribute to a Health Savings Account, your contributions will further help you to reduce taxable income. You may contribute up to the amount of your annual plan deductible but not more than $2,700 for individuals ($5,450 for families) this year. Account holders age 55 and above can make an additional $700 contribution in 2006. Best of all, you can take an above-the-line deduction for your contribution.

Open a Virginia 529 college savings account.

Many of our clients contribute to 529 college savings plans for their children or grandchildren. Contributions in some states (like Virginia) can qualify for a state tax deduction, if made before the end of the year. These accounts work similarly to Roth IRAs. Although contributions to these plans are made with after-tax dollars, the accounts grow tax-free. All withdrawals for qualified higher education expenses (including tuition, books, room and board) are tax free.

In Virginia, 529 account holders can receive a state tax deduction (up to $2,000) for contributions. Larger contributions can be carried forward and deducted in future tax years.

Support your favorite charity.

If you plan on itemizing your deductions, consider making an end-of-year contribution to your favorite charity. And remember, gifts don't have to be in the form of cash. Consider giving highly appreciated stock or land. Charities pay no capital gains tax on either stock or land gifts.

Additionally, the Pension Protection Act of 2006 will allow you to gift $100,000 tax-free from your IRA to your favorite charity. The one caveat: you must be 70 1/2 years of age or older. These qualified charitable distributions will satisfy required minimum distributions but are only available to taxpayers in 2006 and 2007.

Learn more...

We advise our clients to meet with their tax professional in November or December to review their tax plan before year's end. Tax planning is complex and time consuming. So, make an appointment with your tax professional before the real tax season hits.

For more information about year-end tax planning, you are invited to attend this month's NAPFA Consumer Education Foundation presentation. John G. Bowen, CPA, CFP®, AIF®, of Bowen Financial Services, LLC, will be speaking on "Year-end Tax Planning" on December 9, 2006.

The NCEF presentation will be held in the Northside Library meeting room in the Albemarle Square Shopping Center from 12:00 p.m. to 1:30 p.m. All presentations are free and open to the public. You are encouraged to attend and to bring your financial questions.

from http://www.emarotta.com/article.php?ID=207