Monday, November 30, 2009

It's ok to get a tax refund

On Mondays, we answer a question on the blog from a reader. If you have a question, please leave it in the comments section.

QUESTION: I usually get a large tax refund every year. I use it to pay off debt or buy something I want. Is that a mistake? Am I letting the government borrow my money for free?

ANSWER from Dan Danford: I hear stuff like this all the time. Yes, the government is "using" your money all year long and then sending it back to you at tax time. But, really, would you rather save it yourself and write them a big check each April? My experience is that people hate writing that check and most prefer an annual refund. From a pure financial standpoint, the best case scenario is that your withholding taxes match exactly your tax due. That isn't likely to happen, though, and psychology suggests a refund is more palatable than writing a check. After thirty years in the investment business, I've discovered that psychology trumps math for almost everyone!

Thursday, November 26, 2009

Thanksgiving: Nothing financial today

By Staff of the Family Investment Center

We spend a lot of time on this page discussing financial matters. But today, we want to do something different.

We want to take the time to thank our clients and customers for their business. We want to thank our families for supporting us in our work. We want to thank the readers of this blog for reading this blog, linking to it and contacting us on Twitter.

We want to thank you for your trust. It's been a year of ups and downs, and you've stuck with us.

Thank you. And may you feel thankful today for your own families, friends and other blessings.

Wednesday, November 25, 2009

A charity that's run like a business

This time of year, we all look for opportunities to give to non-profits. I ran across this story today on the CNN web site of a well-managed non-profit that applies business principles to its operations.

It's run by an ex-Silicon Valley executive, Tom Hogan, who wanted to bring basic services to the Baja region of Mexico. This quote caught my attention: "Every one of our programs runs off spreadsheets with specific dollar amounts. We can tell our donors 'for $55,000, you can give potable water to these three tribes,' or 'for $6,000, you can sponsor two health fairs.' Donors, especially the high-end folks like venture capitalists, love it. It's very specific and precise."

When you're making your gifts to charity, especially if you are giving large amounts, make sure that the charities have responsible plans in place. Look at the 990s for the non-profit. Many non-profits post those forms, which are required by the IRS, on their web sites. Ask about their plans for the future. Think of it as an investment. Read on for more of Hogan's plans and thoughts on non-profit management.

Tuesday, November 24, 2009

Set a budget, stick to it

By Dan Danford

This Friday, hoards of shoppers will head out in the wee hours, still stuffed with turkey, to plough their way through the crowds towards bargains. There probably are some good bargains out there. But the problem with this day of shopping is the same as how many Americans treat everything else: they don't plan.

Your plan for Black Friday shopping - and holiday shopping in general - should include some common elements.

Decide what you want to spend overall. If you have a Christmas Club account, congratulations, you've planned and have your budget for shopping. To determine how much you can spend if you don't have that tool, look at what is in savings, how much extra you have in the budget and what big expenses you have coming up. If you're self-employed, make sure you've set aside money for taxes BEFORE you make this determination. Do not factor in any credit card spending, unless you're prepared to pay it off immediately.

Decide who you're going to buy for. Immediate family first, and then make your way down the list. Are there people you've always bought for out of habit who you really don't speak to that often? Maybe it's time to trim the list, or cut back on what you buy.

Divide the money you have available to you among the people you've got on your list. Spend more on your immediate family, if that's your custom.

Decide what you want to buy, and look around online. Can you buy what you want with the money you have allocated? Don't let anyone pressure you into buying somethinng that costs more than you can afford, whether it's a child or adult. It's a gift. Their job is to be grateful for getting it, not dictate what you buy.

Write all of this down. Take your list with you shopping. Treat it like a grocery list, and mark people off as you shop.

The problem with Black Friday is that people see sales that they believe are bargains and they decide to spend more than they've planned due to the bargains available. Don't buy your brother that $450 computer at Wal-Mart if you're only prepared to spend $300 on him, even if he does need it and it is a good deal. Make a plan. Stick to it. And avoid using credit as much as possible.

Monday, November 23, 2009

A wonderful Christmas gift

On Mondays, we answer questions from a reader. Here's this week's question, which has an eye already on the holidays.

QUESTION: I would like to give my grown children a significant cash gift for Christmas this year. I’ve had a good year with my business. However, I don’t want them to incur any sort of tax on it. Is there any sort of guideline for how much I can give and the best way to give them the gift?

ANSWER: Gift rules are simple, but confusing. You can give up to $13,000 to anybody each year without any tax consequence. You and your spouse can give up to $26,000 to anybody each year. No taxes for the recipient, and no tax consequence for the giver(s), either.

If you exceed that amount, you are required to file a gift tax return (no taxes due, though) and keep track of the cumulative amounts given. Eventually, those amounts (total gifts exceeding the annual limit) could impact the size of the giver's estate, and how much estate tax will be due upon death. But, most people won't have a taxable estate anyway, and few givers regularly exceed the annual limits. Basically, keep the gift value below $13,000 per person for 2009, and there's no impact for anyone.

Cash is always a welcome gift, but the annual limit is based on "value." Many advisors recommend the gifting of appreciated assets (stocks or property with a low tax basis) because that avoids a capital gains tax for the giver, and moves those values out of the future estate. Similarly, things that are growing in value very quickly - again, growth stocks or other appreciating assets - are a nice shift, too, because the value today could be much higher when the estate settles eventually.

Most people face little impact at all from a gifting program. For people with a lot of wealth, these can become complex estate planning matters. The simple answer for most folks is that giving away up to $13,000 per year per spouse is a way to be really appreciated by your kids and grandkids. And that Uncle Sam doesn't care at all!

Friday, November 20, 2009

Small business financing

Dan Danford regularly provides financial advice for fathers going through the divorce process on a great site called Dad's Divorce.

Here's his latest podcast on small business financing.

Tuesday, November 17, 2009

Need extra cash? This is prime time for a second job

By Robyn Davis Sekula

All of us would like to have more savings and pay off debt. Sometimes, the only way we have to get ahead is to increase our incomes. I’ve done that during the past five years by changing my day job and building my own business, and I’m really pleased with how that’s gone. I’ve also pursued a few simple side businesses that I think virtually anyone could do if they’re willing to take the time and energy to do so. Between now and December 25, opportunities abound for those who need extra cash, and I’m going to outline a few options here.

Here’s a key thing to remember as you read:
Everything that makes a strong profit requires knowledge and research. And everything adheres to the general economic principle of supply and demand. You have something that someone else wants, badly. They’re willing to pay a lot for it. The key is knowing what the items are and placing them for sale in a public market place.

But there’s nothing here that’s rocket science. You can do this, too, if you’d like.

I sell items on eBay. Every time I tell people this, they want to know what. Mostly it’s things my husband has picked up at yard sales. Sometimes, he’s bought things that have done very, very well. He pays very little for these antiques, sometimes, as little as $1 to $5 each.

Our best sellers are Art Deco items and things that I’d refer to as “old house parts,” meaning certain types of doorknobs, faucets, bathroom accessories, light fixtures, glass shades, and so on. We also look for antiques that pertain to a certain town but that are far removed from that town. Souvenir porcelain pieces commemorating a particular town park or building were common in the 1920s, and they are highly collectible. Every now and then I get stuck with one (anyone want a vase from Reedsburg, Wis.?) but for the most part, they do well. One I bought three years ago for $7 sold for $302 and returned to its hometown in Florida. There are things that I do price low because they simply will not go. I have a set of 1960s vases in a pale green color that look like they walked off the set of Mad Men and I cannot sell them. But I guarantee you Greg didn’t pay more than $1 for it, so I’m OK with that.

My friend Kate sells items on Amazon. I don’t want to give too much detail because she’s in better physical condition than me and she might really hurt me if I tell you too much. I became a partner with her this summer in picking up items that we could resell on eBay for a large profit. There was a certain type of Crest toothpaste (Lemon Ice, if you must know) that Crest discontinued, and it began showing up at discount stores. I started hunting for that, and then a few other things in the health and beauty area, for Kate. We’d buy the toothpaste for $2 per tube and sell it for $20. She paid a modest fee to Amazon for the listings and we’d split the profit. During the fall, she stocks up on hot toys for the holiday season. How does she determines what’s hot? She goes through the entire Sunday ad of a mainstream toy retailer and runs each and every item through Amazon to see if they’re selling strong and if the item is selling at a higher price than they are in the stores. If so, she buys it when she can, places it on Amazon, and sells it. In almost every instance, she finds that with enough determination, she can buy and resell desirable toys for a large profit margin. “Just about every year, I can find every hot toy with just some determined looking,” Kate tells me. She profits from her knowledge, research and determination, and really, from the other side of it, which is someone’s lack of determination. And yes, I’ve been on both sides of this. I’ve ordered from Amazon and sold with Kate on Amazon. Which side are you? There’s no right or wrong here. If you have a high-paying job where you are paid by the hour, it may in fact be a better deal for you to pay the profit margin to someone like Kate than to spend your time driving from store to store in search of presents for your family and friends. Convenience has a price, and it’s perfectly fine to pay it.

My friend Elizabeth sells on, a site for crafters. She buys certain types of old board games, magazines and other items inexpensively and then combines items in packages to sell to crafters and scrapbookers all over the world. I’ve found a few things for her here and there and given them to her to divide up and sell.

My neighbor Chris does handyman jobs, cuts down trees and yard work for extra cash year-round. In fact, he’s scheduled to cut down a tree in our yard and clean the leaves up with this giant leaf-sucker machine soon. Since we have an acre yard and three kids six and under, having him do the yard is a bargain.

Other people refinish furniture, paint, or repair lawnmowers for extra cash. There are all kinds of options – and anything you can do where you work for yourself will make you a lot more money than if you work for someone else. The UPS box-throwing job at nights is good work, and so are the retail jobs you can score this time of year. But those are not jobs that require knowledge or skill. Stay away from the multi-level marketing gigs such as Mary Kay. Those are not side jobs. The people who are good at MLM jobs spend all day, every day on it.

So – what do you do to make extra money? Post it in the comments section.

Monday, November 16, 2009

It's too risky to skip health insurance

On Mondays, we answer a question from a reader. If you have a question, please leave it in the comments section.

Q: If I lose my job, should I keep the health insurance through COBRA? It seems expensive.

Answer from Dan Danford: COBRA is a continuation of the employer's health plan after termination. The reason it's so high is because the terminated employee is now paying the entire premium cost whereas before that the employer paid some portion. Under the Stimulus Plan, for a limited period of time, the government will pay 65 percent of COBRA premium costs for most terminated employees. Actually, as I understand it, the employer pays the 65 percent and then gets reimbursed by our government. Of course, health plans differ from employer to employer, so exact cost, terms, and benefits for one person are often different than another.

Whether to use the COBRA provisions from your former employer should be decided based on your circumstances. People who are young and in good health may be able to find an individual of family health policy cheaper than the COBRA costs. Older workers may not be able to find better or cheaper coverage, especially with the 65 percent reimbursement. Whatever your circumstance, it's probably wise to check into buying another policy, just for comparison's sake.

In all circumstances, it's very hazardous to run without health coverage. The cost of even minor accidents or illnesses is enough to sink most family boats. At the very least, find a high deductible policy that protects against catastrophic events. Without one, a lifetime of savings could disappear in a moment. The risk is too high to go without.

Friday, November 13, 2009

FICO scores, demystified

Having a good credit score is mandatory for the world we live in today if you want to maximize your income. We spotted a great article with lots of useful information about how credit scores are calculated on today and wanted to post it for everyone to read. Here's a link:

Watch gift card fees when buying

By Robyn Davis Sekula

You have to admit that gift cards are wonderfully convenient. Walk into a store, purchase a stack of them and you can ship them in a matter of minutes with no extra postage. For those of us who have a lot of relatives flung far and wide, it's wonderfully easy.

However, if you're a frequent gift-card giver, as I am, make sure you read the fine print. Cards sometimes have hidden fees, and in many cases, they diminish in value over time.

Here's an excellent review of the gift card business by Sandra Block of USA Today. You can follow Sandra on Twitter @sandyblock. Yes, I'm quoted in it, but I think it's particularly good because she doesn't just cheerlead the convenience - she reviews why some people don't like them and how new legislation will affect gift cards in the future.

Read on here:

Wednesday, November 11, 2009

Opportunities still abound in housing market

It may sound like bad news that there are still lots of houses in the real estate market. But whether or not it is bad news depends on which side of this you're on.

If you want to buy, this is a terrific opportunity. It's time to snap up that second home you've always wanted near your grown children. Or, if you're young, it's time to buy your first home, IF you can afford it.

Just remember, it's simple supply and demand. There's always another side to the market. Which side are you on?

Read the latest news on the housing market from Fortune here:

Tuesday, November 10, 2009

Social Security: Don't count on it.

Each week, we answer a question from a reader in this space. If you have a question for Dan Danford, post it in the comments section.

QUESTION: I’m 52 and looking at what I need to put away for retirement. How should I treat Social Security income? Should I include it in my calculations or plan as if I won’t have it?

ANSWER: The old "social security won't be there when I retire" myth. I hear this all the time, but I don't buy it at all. Social security is - more that anything else - a political issue. No substantive changes can take place because it's politically impossible to make them. We baby-boomers account for 70 million votes, and most of us get a bit indignant when someone threatens our retirement!

My colleague at Family Investment Center, Jason White, Ph.D., did his dissertation on social security and published it as a book. His premise is that the system is much more solvent than generally believed, and his arguments are compelling. As I said earlier, this is a political topic and much that is said is motivated by politics. It's hard to sort out the truth, but Jason does a nice job.

Having said all that, I consider social security to be an augmentation of retirement savings. The best of all worlds is to have enough that you don't need social security, and then to get it anyway. So, my default would be to plan and save as if it's not going to be there. Then, you'll have more than enough when you retire.

Friday, November 6, 2009

Get out of debt on your own

For those who want to get out of debt, those commercials that promise to reduce debt by large percentages by working with your creditors, are tempting. But don't be fooled. The old rule still applies: if it sounds too good to be true, it probably is. If you want to get out of debt, there's no better way to do it than to methodically track your spending and just simply pay down your debts, one at a time. You can do this. You may not want to do this, but you can.

Debt consolidation companies rarely keep their promises, and sometimes, their fees eat up any savings they might promise you. Don't go this route. Commit yourself to going after your debt on your own.

Read more here:

Wednesday, November 4, 2009

On risk: it's there, even if you can't see it

Editor's note: We occasionally respond to media inquiries and I thought this answer from Dan to a reporter was particularly astute. I'm posting it so you can read his thoughts on this - he makes great points. - Robyn Davis Sekula

By Dan Danford

Of all the bits of financial information available to consumers, risk is the least understood. Study after study shows that people routinely misjudge risk, and personal finance is a bad place to mess up. It's hard to see the risk in a rising stock price - until the shares plummet. Similarly, a good job seems stable right up to and until the pink slip arrives. Housing prices in a new neighborhood have never fallen; then they do. I once worked for a bank that had several decades of non-stop rising dividends. Safest bank ever! It failed 18 months after I started working there (not my fault, either!). The point is that most folks are terrible at understanding the risks in their financial lives.

There are several ways to hedge those risks. First, diversify everything. Have two family jobs instead of one. Go to school to keep your skills current or to learn a second trade. Keep emergency reserves in a savings account. Buy ten stocks instead of one, or, better yet, a good mutual fund. Financial advisors work in these realms every day, and they work with dozens of other families and situations. If nothing else, they have a better grasp on family risk than the typical consumer. Let a professional guide you to solid solutions and profitable actions.

You can save a lot of premium money by avoiding health insurance. And you might say that - based on your personal history - there's not a lot of risk in that strategy. But that's not really accurate. You may not see the risk, but it's there all the same. That's true of many family financial issues. Risk may not be obvious, but it's there anyway. Do you want to know now - or later?

Monday, November 2, 2009

Don't listen to anyone who tries to predict market

On Mondays, we answer a question from a reader. If you have a question, please post it in the comments section.

QUESTION: What financial commentator do you like? Who do you think gives good advice?

ANSWER FROM DAN DANFORD: Well, I'd ignore any commentator who professes to predict the markets. There is little evidence that short-term markets are predictable, and those boneheads on television are entertainers, not advisors. Longer-term markets are more predictable, but few viewers care about a five-year prediction! Our website lists a number of terrific books and resources, but Jon Clements' new book "The Little Book of Main Street Money" is a great start. Also, as I've noted before, good spending habits are likely more important in building wealth than investment skills. For more on that, visit my review of Tom Stanley's new book "Stop Acting Rich" Simple answer? Boring works best. Focus on healthy habits and you'll prosper.