How to Figure Your Net Worth
August 18th 2016
Essentially, your net worth is the value of what you own, minus what you owe.
Or, as a formula: assets – liabilities = net worth
An easy way to figure it out it is via an online calculator like the one at Bankrate.com. But you may also want to track your net worth over time to see your progress, in which case you could use an online program like Mint.com that will remember your past results or even a simple Excel spreadsheet.
To calculate it manually, you’d start by adding together all your assets. Here is a list what qualifies:
- The amount your checking and savings accounts
- The amount in your brokerage and retirement accounts
- The market value of your home
- The estimated value of the items in your home
- The value of your car
- Cash value life insurance
Next, you’d subtract your liabilities. If you aren’t sure how much you owe, get a copy of your credit report, since all your debts are listed there. Here is a list of common liabilities:
- Home loans, such as a mortgage, home equity loan or line of credit
- Auto loan or lease
- Credit cards
- Student loans
- Other loans, such as a personal bank loan or a 401(k) loan.
That will give you your net worth. Simple as that!
This will give you a great overview of what areas of your wealth that needs better management – and remember we are always here to help!
Stock Basics 101
Wouldn’t you love to be a business owner without ever having to show up at work? Imagine if you could sit back, watch your company grow, and collect the dividend checks as the money rolls in! This situation might sound like a pipe dream, but it’s closer to reality than you might think.
As you’ve probably guessed, we’re talking about owning stocks. This fabulous category of financial instruments is, without a doubt, one of the greatest tools ever invented for building wealth. Stocks are a part, if not the cornerstone, of nearly any investment portfolio. When you start on your road to financial freedom, you need to have a solid understanding of stocks and how they trade on the stock market.
Over the last few decades, the average person’s interest in the stock market has grown exponentially. What was once a toy of the rich has now turned into the vehicle of choice for growing wealth. This demand coupled with advances in trading technology has opened up the markets so that nowadays nearly anybody can own stocks.
Despite their popularity, however, most people don’t fully understand stocks. Much is learned from conversations around the water cooler with others who also don’t know what they’re talking about. Chances are you’ve already heard people say things like, “Bob’s cousin made a killing in XYZ company, and now he’s got another hot tip…” or “Watch out with stocks–you can lose your shirt in a matter of days!” So much of this misinformation is based on a get-rich-quick mentality, which was especially prevalent during the amazing dotcom market in the late ’90s. People thought that stocks were the magic answer to instant wealth with no risk. The ensuing dotcom crash proved that this is not the case. Stocks can (and do) create massive amounts of wealth, but they aren’t without risks. The only solution to this is education. The key to protecting yourself in the stock market is to understand where you are putting your money.
Read more: Stocks Basics: Introduction | Investopedia http://www.investopedia.com/university/stocks/#ixzz4H8839RJ9
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July 12, 2016
The Basics Of Financial Responsibility
By Lisa Smith
What does it mean to be financially responsible? It’s a complex question with a complex answer, but at its core is a simple truth: To be financially responsible, you need to live within your means. And to live within your means, you must spend less than you make!
Credit Cards and Debt
Sorry – if you’re really looking to be financially responsible, just being able to make your credit card payment doesn’t cut it. In fact, the fact that you have a credit card payment at all and aren’t able to pay your balance in full shows that you already spend more than you earn. Responsible use of a credit means paying the balance on your account in full each month.
And (this part will hurt) credit cards should be used for convenience, not to make ends meet. Credit cards are handy because they eliminate the need to carry cash – you can even generate reward points. And credit cards can be very helpful in an emergency. That said, if an emergency does force you to carry a balance on your card, living in a financially responsible manner means curbing your spending until that balance is paid off.
The same logic applies to all recurring payments that involve paying interest. Think about: Paying interest on anything means that you are spending more for that item than the purchase price. Does that sound like the most responsible choice, or just the most convenient? When the interest payments are factored in to the purchase price, you are spending more to obtain the item than even the item’s manufacturer thought it was worth. As such, avoiding paying interest on anything should be a major objective. Of course, when it comes to the cost of housing and transportation, avoiding interest is almost impossible for most of us. In such situations, minimizing the amount you spend in interest each month is the most responsible action.
Acting in Your Own Best Interest
For many people, cutting down on interest and borrowing is easier said than done, but in practice, it really comes down to knowing the difference between necessities and luxuries. For example, you might need a car, but you don’t need a luxury sedan and, unless you can afford to pay for it in cash, you shouldn’t be driving one. Likewise, you might need a place to live, but you don’t need a mansion. And, although most of us must have a mortgage in order to afford a home, purchasing a home in a financially responsible manner means that you should purchase one that won’t break the bank. In financial terms, this means it shouldn’t cost more than two or 2.5- times your yearly income. Another healthy estimate is that your monthly mortgage payment should not cost more than 30% of your monthly take-home pay. (Read Mortgages: How Much Can You Afford? for more guidance on the number-crunching.)
In addition to avoiding overspending on your home purchase, you should make a down payment that is large enough to eliminate the requirement of having to pay for private mortgage insurance (PMI). If you can’t afford to meet these purchasing guidelines, rent until you can afford to buy. (For related reading, see Be Mortgage-Free Faster.)
Paying Yourself First
Spending every dime that you earn is simply irresponsible unless you have a massive trust fund that is so flush with cash that you will never outlive the earnings. For most people, especially those of us hoping to retire someday, saving is an activity that must be taken seriously. A great way to do this is when you get your paycheck – and before you pay your bills – pay yourself first. A good goal to save is 10%. (For tips on how to do this, read Save Without Sacrifice.)
When it comes to saving, investing in the stock market might be the most profitable choice available. Sure, investing involves risk, but taking calculated risks is sometimes a necessity. The responsible way to go about it is to have a plan.
Start by examining asset allocation strategies to learn how to choose the right mix of securities for your investing strategy. From there, contribute to your employer-sponsored savings plan if such a plan is available. Most plans offer to match your contributions up to a certain percentage, so by contributing at least enough to get the match, you earn a guaranteed return on your investment. If your finances permit, maximize your tax-deferred savings opportunities by contributing the full amount that the plan allows. After you’ve started investing, monitor the progress that you are making toward your goals and rebalance you portfolio as necessary to remain on track. (Learn how to get started in Investing 101: A Tutorial For Beginner Investors.)
Financial responsibility means being prepared for the unexpected. Most experts agree that you need to be able to support yourself financially for at least six months without an income. If you are married and used to living on dual incomes, this means being able to pay the necessary bills such as the mortgage, food and utilities on one income – or even neither income! If a missed paycheck would ruin you financially, it’s time to create a financial escape hatch to prevent this. (Read Build Yourself An Emergency Fund to figure out if you have enough savings to cover the costs of unforeseen crises.)
Don’t Worry About the Neighbors
Financial responsibly means doing what you have to do to take care of your needs and the needs of your family. To make this happen, your focus should be internal. The neighbors aren’t paying your bills, so their spending habits shouldn’t dictate yours or set the bar for your standard of living. (For more on this topic, see Stop Keeping Up With The Joneses – They’re Broke.)
Having a budget is one the core pillars of financial responsibility. You should know where your money is going. Business owners know the importance of understanding their cash flows and balance sheets; as a result, no successful business exists without a budget. Neither should you. (Read The Beauty Of Budgeting to find out how a budget can help you make it to the end of the month with money to spare.)
A Very Personal Definition
Does being financially responsible mean that you have to scrimp and save? Maybe, but only if that is what it takes to live within your means. On the other hand, if you are the Sultan of Brunei, you may easily be able to afford a jet, a mega-yacht, a mansion in the South of France and a few palaces. Although those of us with lesser means might frown on this extravagance, it shouldn’t be confused with a lack of financial responsibility. After all, there’s nothing irresponsible about buying things you can afford to pay for.
Arriving at “Responsible”
Ultimately, financial responsibility means living within your means, regardless of the level of those means. So take a close look at your financial situation, evaluate you earning and spending habits, and make the necessary adjustments to put yourself on responsible financial footing.
July 5, 2016
On June 23, 2016, the British people voted to leave the European Union. This has created shock waves in the markets around the world, but your clients needn’t panic about how it could affect them. The Dow dropped 500 points at the beginning of trading, and the British pound took its worst nosedive in history as a result of the referendum. But both losses were pared back in later trading during the day, and it is unlikely that your clients will feel a material impact from this in their portfolios.
The United Kingdom held a referendum this week to vote on whether the U.K. should stay in the European Union. The vote came out narrowly in favor of leaving, and the British Prime Minister David Cameron announced his resignation the following morning in the wake of the final tally. In addition to the previously mentioned effects on the Dow and the pound, gold jumped to a new two-year high and stocks in Germany and Japan dropped by about 10%. But these knee-jerk reactions will most likely correct themselves fairly quickly. Any real effect that comes from Brexit will likely take at least several months to materialize, and experts aren’t exactly sure what the outcome of this will be, since it has never happened before.
Looking down the road, there may be some upheaval in the international markets. Some of Britain’s major trading partners, such as India and China are afraid that the split with the EU could lead to regulatory and economic upheaval that could hurt all three economies. And the financial community in the Far East is worried that a drop in the pound could lead to a strengthening of the yen, which would make exports more expensive for buyers. And many companies in the U.S. and China that have previously traded heavily with Britain because of the access that the U.K. gave them to European channels may now see their profits drastically reduced as a result of this move. And the extended negotiations that will be required in order to facilitate Brexit may lead to a period of further instability in the markets.
The International Monetary Fund said in an April report that “Negotiations on post-exit arrangements would likely be protracted, resulting in an extended period of heightened uncertainty that could weigh heavily on confidence and investment, all the while increasing financial market volatility. A U.K. exit from Europe’s single market would also likely disrupt and reduce mutual trade and financial flows, curtailing key benefits from economic cooperation and integration, such as those resulting from economies of scale and efficient specialization.”
Ultimately this means that there could be a global recession as a result of this move that could last for months — or even years. In Europe, one of the biggest impacts that Brexit could lead to would be further exits from the E.U. Britain’s exit could possibly start a larger trend of defection from the union, depending upon the economic consequences of this decision. Groups of nationalists in every country will be closely watching how this move unfolds in order to gain an idea of what might happen if they follow suit.
Sourced from Mark P. Cussen of Investopdia
June 26, 2016
You may not have heard much about 401(k) theft, but it happens–not the kind where employees take money from their own accounts illegally, either. This is a different type of theft–one that results in an employer stealing money from your retirement plan.
Many people believe their employer has their best interests at heart, but in a cash-strapped economy, everyone is trying to get their hands on free money and people can become desperate. If you don’t want to lose the funds you’ve worked for years to save, learn about this type of theft and the 401(k) protection that’s available to keep it from happening to you.
Cases of Reverse 401(k) Theft
The occurrence of companies stealing from employer-sponsored 401(k) accounts is not as uncommon as you may think. According to a 2009 MSN Money article, CEOs routinely steal money from their employees’ accounts. Some even keep 10 percent or more of profits for themselves instead of using it to boost share prices of the stocks their employees hold.
Reverse 401(k) theft occurs on many levels, from the small business that dips into employees’ accounts to major conglomerates outright robbing its workers of every dollar they worked hard to save.
A number of cases of reverse 401(k) theft have come to light in recent years. Here are just a few:
- LTS: Kim Ghi Martin, the former CEO of Leading Technology Services Corp. (LTS) was sentenced to prison and ordered to repay approximately $57,000 in restitution to plan participants after stealing from their accounts.
- Explore General: In another lawsuit, the Labor Department alleged that Explore General and its officers failed to forward more than $70,000 in employee contributions and collected more than $100,000 owed to the company’s 401 401(k) fund. The owners co-mingled contributions with general assets and used the money to pay general operating expenses for the company.
- Enron: Remember just how much damage Enron caused? After the scandal came to light, the CEOs took millions of dollars for themselves, filed for bankruptcy and left tens of thousands of employees jobless with drained 401(k) accounts and tiny severance packages.
- 24 lawsuits: On Nov. 15, federal officials filed 24 lawsuits in a crack-down on employers from Kentucky to California that robbed worker retirement accounts. Similar to Enron, these bankrupt and defunct companies allegedly raided their employee’s retirement accounts before going under.
Unfortunately, having an employer steal your money is so common that it’s up to you to protect yourself from this type of fraud. By learning the warning signs of theft, you could lower the odds of becoming a victim.
Warning Signs That Your Employer Could Be Stealing Your 401(k)
While it’s not always easy to know if your employer is stealing money from your 401(k), the U.S. Department of Labor has issued 10 warning signs that your contributions are being misused:
- Late statement:If you’re 401(k) or IRA statement is consistently late or comes in irregular intervals, this is a red flag.
- Inaccurate balance: If you’re balance does not appear to be accurate, this is a cause for concern.
- Failed contribution transmission: Take notice if your employer fails to transmit your contribution to your plan on a timely basis.
- Drop in balance: A significant drop in your account balance is a sign that your boss could be stealing.
- No paycheck contributions: If you don’t see contributions being made from your paycheck, you may want to start asking questions.
- Unauthorized investments: You may notice investments listed on your statement that have not been authorized by you.
- Issues for former employees: Take notice if former employees have trouble getting their benefits paid on time or in the correct amounts.
- Unusual transactions: Look for transactions like loans to your employer, corporate offices or plan trustees. These types of transactions should not occur from your account.
- Unexplained changes: If you notice frequent or unexplained changes in investment managers or consultants, some shady dealings may be occurring behind the scenes.
- Employer financial challenges: An employer with recent financial difficulties could resort to strange things to make ends meet.
If you have a feeling that money from your account could be in jeopardy, it’s important to take the necessary steps to keep it safe.
Keeping Your 401(k) Account Safe
While your 401(k) investment may be partially tied to your employer because of contribution matches to your account, the fact of the matter is that the account and any money you contribute to it is 100 percent yours.
So how can you keep your hands on what rightfully belongs to you?
- Monitor your account: The Labor Department recommends you monitor your account on a regular basis to make sure it looks accurate. You could do this online, via an 800 number or by checking your quarterly statement.
- Check your paycheck: Check the total withheld from your paycheck for a quarter or year against the total of the corresponding account statement.
- Take action on late deposits: If your contribution is not added to your account within the agreed upon time period,call the Labor Department immediately.
- Take a close look at your employer: Look for news reports on your employer to find out if it’s having cash-flow or other financial problems. If you find out this is true, you may want to watch your account even closer.
- View the Form 5500: You could also ask for a copy of your employer’s auditor’s report (Form 5500) if it has more than 100 plan participants.
Discrepancies could first be brought to your employer’s attention, but if your employer refuses to act, it’s important to get the Labor Department involved immediately. Your ultimate goal is to ensure your 401(k) is not being stolen from and if it is that you be paid back. Luckily, there are ways to protect your account, so take steps now to ensure that you do just that.
Now that tax season is over, you might be wondering what to do with all those files? How long do I keep them? Here is the answer!
Keep all tax-related records for at least three years. For example, keep your 2015 tax return, filed in early 2016, at the very least until April 15, 2019. This includes not just W-2s but also documentation for itemized deductions such as medical bills, mileage logs, education costs and whatever else you claimed on your tax return. The rule of thumb is, if it is mentioned anywhere on your tax forms, you better have something to back it up.
Statutes of Limitations
The IRS has a three-year window in which it can review your case and assess additional taxes. If you cannot sufficiently support a deduction, the taxman is likely to disqualify it entirely, adding back taxes and potential penalties. Then, there are a few specific situations where you have to save your records even longer. Records supporting your deductions for bad loansand worthless investments must be saved for seven years. Cases in which you have under-reported more than 25% of your gross income must be saved for six years. Fraudulent returns, or if you failed to file a return entirely, have no statute of limitations at all.
In addition to tax records, remember to keep records of your investments. A mutual fund that has been reinvesting the dividends into more shares for 10 years must include the reinvestments into the equation when capital gains are calculated after a sell-off. Do not trust the broker or fund company to keep the records forever; scan and store the annual statements along with your tax returns in a digital vault or on a CD-ROM in a bank safe deposit box.
Sourced from Investopedia
March 21, 2016
What is the difference between an IRA and ROTH IRA?
The main difference is when you pay income taxes on the money you put in the plans. With a traditional IRA, you pay the taxes on the back end – that is, when you withdraw the money in retirement. But, in some cases, you may escape taxes on the front end – when you put the money into the account.
With a Roth IRA, it’s the exact opposite. You pay the taxes on the front end, but there are no taxes on the back end. And remember, in both traditional and Roth IRAs, your money grows tax free while it’s in the account.
There are other differences too. While almost anyone with earned income can contribute to a traditional IRA, there are income limits for contributing to a Roth IRA. So, not everyone can take advantage of them.
Roth IRAs are more flexible if you need to withdraw some of the money early.
With a Roth IRA, you can leave the money in for as long as you want, letting it grow and grow as you get older and older. With a traditional IRA, by contrast, you must start withdrawing the money by the time you reach age 70½.
Why is an IRA a good idea?
Because money in the plan grows free from the clutches of Uncle Sam. That is, the income from interest, dividends and capital gains can compound each year without taxes nipping away at it.
In addition, you also can escape taxes on either the money you put into the plan initially or on the money you withdraw in retirement, depending upon whether you choose a traditional or Roth IRA.
So what’s the catch? The government limits the amount of money you can put into an IRA each year. Most people under 50 can contribute no more than $5,500 a year; that limit rises if you’re older.
Which is best for me?
Instances a ROTH IRA may be best for you:
- Just starting your career and are in a low tax bracket.
- Recent job change or loss of employment for part of the year. (Resulting in being in a lower tax bracket then usual)
- Semi-retired making less then you will be in full retirement.
- If you expect to be in a higher tax bracket in retirement.
Instances a Traditional IRA may be best for you:
- If you expect to be in a lower tax bracket in retirement.
- As a way to reduce your current tax liability.
- If your income level has pushed you slightly into a higher tax bracket.
Not everyone will fit in to these ideals, so call us today and let us review your information for a no cost, not obligation plan for your retirement.