2012 Money Play

As a new year approaches, it is a great time to starting talking and thinking about your finances for 2012.  There are some things that you and I want to consider now for 2012:

Develop a budget

It is going to be important to develop a budget for 2012 and to stick to that budget as best as you possibly can.  Here are some things you can do right now to construct your budget. 

1.      Log onto your bank account.

2.      List all of the things you have spent money on from January 1, 2011 until now (include all the transactions in your accounts – checks, withdrawals, debit card usage, bank fees, etc.)

3.      Categorize all of your expenses into the following categories for each month: Housing (mortgage, insurance, real estate taxes, rent, utilities, repairs to home, etc). Transportation (automobile expenses including insurance, taxi/cabs, bus or train fare, etc). Meals (meals purchases at work, groceries, etc.). Entertainment (meals outside of work and home, movies, subscriptions – magazines, NetFlix, etc). Travel (vacations). Personal care – haircut, salon, spa, etc. Investments – any amount you spend on investments outside of job sponsored retirement plans, this includes savings and life insurance. Miscellaneous – anything else which does not fit in any of the above categories.

4.      List your monthly take home income.

5.      Subtract your total expenses from your total income.

6.      Are there any negative months?  What happened in those months? Was there some level of emergency? Were there any months that were profitable? Did you break even in some months? What happened in those months?

7.      Take another sheet of paper and a calculator and figure out how much of your annual take home salary is being spent in each of the eight expense categories. 

8.      Compare your results to what I call a typical budget: Housing should consume no more than 30% - 37% of your take home or net pay. Transportation – about 20%. Meals – between 15% and 20%. Entertainment – 3% to 5%. Travel – 5% to 10%. Personal care – 3% to 7%. Investment – 5% to 10%. Miscellaneous – 3% to 5%.

9.      If your percentages don’t match up with those in item 8, you should consider adjusting your expenses accordingly.

10.  Stick to the budget you created in 2012. Don’t go astray from the path.

Get out of debt

Debt grows faster than your income so it is a mandate to get out of debt as soon as you can.  With the rate that the world’s economy is going make it a priority to retire your debt as soon as you possibly can.  This includes student loans as well.  I would suggest opening a separate bank account where you pay your debt from and call it your DSA - Debt Shrinking Account.  Make extra payment if you can to shrink your debt faster.  Email me for more advice on this.

Develop a plan to save and invest

Now that you have your budget and DSA in place you will need to develop a plan to save and invest.  The 5% to 10% that is being set aside for investments should be split in half between investments and savings.  Your savings here would be your “rainy day” fund.  The way the world’s economy looks we are in for quite a few rainy days in 2012.  It is always best to be prepared.

Speak with a financial advisor on what you should use the other half of your funds to actually invest in.

Watch the markets

This doesn’t mean only the stock market.  But watch all the markets.  What are you looking for?  You are looking for opportunity, an opportunity that can catapult you and your family to the next level.  With the other three items, mentioned above, in place you now have the ability to not only watch the markets but also take advantage of some of the opportunities that are presented to. 

Tax cleaning

I am sure you have heard of spring cleaning, but tax cleaning?  Since it is the end of the year, it is time to do some tax cleaning.  You ready? Ok great, let’s start:

Portfolio investments

Begin cycling through your investment portfolio; if you have sustained losses on some of your investments sell them now. Don’t worry if you like the investment buy it back immediately with just a few clicks of the mouse. We want the loss for your tax return.

Donations

Go through your closets, basements, garages and other “storage” areas.  There are hidden deductions, I meant donations there I am sure. Search for useful things that you haven’t used in the last few months or forgot that you had. Donate those items to a tax exempt organization before the end of the year. Be sure to retrieve a receipt from the organization signifying your name, the date the item(s) were donated and a description of the item.  Be sure the organization is a charitable organization with its tax exemption currently in place.

Maybe you have some extra cash lying around, if so make a yearend contribution to your favorite charity.

Withholdings

If you owed money to the IRS or state you reside in over the past year or two, it maybe a good idea to increase your withholdings at work.  Do this by completing Form W-4 and submitting it to your employer immediately.  Be sure to claim one or two less exemptions that you originally did. Note: you want to do this soon as some employers don’t process W4 changes right away. You can change your W4 back to its original number of exemptions at the start of 2012.

Distributions

If you are over 70 ½ years of age you are required to take a distribution from your IRA or employer sponsored plans.  Be sure to do this before December 31^st. If you don’t take the distribution timely you will certainly pay a penalty for it.

Tax payments

If you pay estimated taxes during the year, make your January 2012 payment before Dec 31, 2011.  This will assist you in lower any potential tax burden in 2011.

You have some information to start with, now start cleaning! Speak with your tax advisor about how this information will impact you specifically. Tax planning is unique to the individual, his/her income and their overall financial health. If you don’t have a tax advisor then visit us at www.thetowlesgroup.com. 

The Intrusion of Black Friday

It appears that retailers are dead set on impacting the family structure this year.  Black Friday is actually starting about six hours earlier this year.  Well I guess that is another story for another time in another setting.  Nonetheless, here are three tips on how to protect yourself and your family financially on Black Friday:

Stay home enjoy family and look forward to Cyber Monday.

Enjoy your family on Thanksgiving Day, don’t eat and run so you can get in line at your favorite retail store.  Part of the dynamic of the “savings” the retailers offer on Black Friday is simply a ploy for you to buy something else that you don’t need.  Safe yourself the headache and shop around on the Internet for the item you are looking for on the Monday after Thanksgiving. Here is a tip: with the state of the economy, the later you wait to more you will probably save. No need to rush.

If you must go into the stores on Black Friday, have a spending plan.

Before you get on line outside of the store have a plan. Ask yourself what am I going to buy and what price am I going to pay for it?  When you have a plan and stick to that plan then the retailers can’t offer you their credit card in order to get an additional percentage off the sale.

Walk in with a plan, stick to the plan and walk out of the retailer with what you planned to walk out with at the right price and nothing more.  No need to layaway what you have planned for. There is no need to finance the purchase you have planned for.  There is no need to spend more than you planned.

Remember you’re on a budget

What is your budget for the Christmas shopping season which starts in a little over 24 hours?  If you don’t have a budget then you don’t have a plan and the only thing that can happen is an unwise move.  Most people can’t afford another unwise financial move this year.  Create your budget today before tomorrow comes and you aren’t prepared.

Let me know how this information has impacted you, whether positively or negatively. I’d like to hear from you. Send your responses to info@frederickotowles.com.

A Turning Point In Business: An Effective Online Presence

According to the U.S. Census Bureau report released in May 2011, the total US e-commerce sales in 2009 were over $145 billion dollars.  This equated to just about 4% of the entire retail industry but it is a key indicator that having an online presence is the way to go.  Being that this is the case I communicated with the CEOs of two cutting edge companies that deal with businesses obtaining an online presence JC Brillant of EyeBottonLine.com Business Development Group Inc and Richard Bonilla of Feedcast Media Group Inc.

EyeBottomLine.com is a company which producing cutting edge websites for business and Feedcast Media is a company which has developed a unique and cutting edge system which enables companies of any size to engage in an effective social media advertising campaign.  These two gentlemen were asked five questions that I felt were important to an up and coming business or a business that has been around some time.

Why is it important for a business to have a presence online?

JC: “All businesses in this day and age need to have an online presence in order to compete and reach their customer base. That business can be anything from a street cart to a barbershop to an auto repair establishment, ALL businesses need to be online to give their potential clients information regarding what they are doing, what product or service is being offered and how the business can be contacted.”

Richard: “Why should a business have a telephone number? Because it is important, it provides a point of communication with the client. And in business communication with the client is everything.  This is the same reason that every business needs a web presence. The world is online and if you aren’t online you are at least twenty years behind your competitor.”

What are some things you would suggest to a company seeking to get exposure?

JC: “All forms of advertising are a must, however it depends on your budget as to what you can afford.  The most reasonable routes of exposure are business cards, flyers and social networking.  These can all be done at a minimal cost and each minimal time constraints.”

Richard: “Social media is probably one of the most efficient and cost effective ways to get exposure online. With persistency and consistency you can beat your competition and be able to touch your customer base.  You can interact with them (the client) and learn about them in real time.  Social media also amplifies your business.  You need a few connectors – people with influence – to speak highly about your business and then momentum starts.”

What are some things a business owner should avoid when seeking exposure online?

JC: “Like any advertising tool….stay away from marketing to the wrong people.  Don’t over exhaust yourself with flooding the social networking sites if you’re not fine tuning who your clientele is and only marketing to them.  It’s easy to say everybody is my client but best practices suggest you market to your clients and your clients only, the rest will follow upon good reviews and references.”

Richard: “Don’t go cheap. Invest in a web design company and social media company that will best represent your company. Find a company that has experience in working with your industry and a track record. That is the best use of your time. I have seen numerous times owners destroying their image because they went cheap or did it themselves. Allow a professional to help your company.”

In your experience, what are two of the most common things that you hear business owners saying about getting exposure online, whether bad or good?

JC: “The first I usually hear being a web developer is I don’t know anything about computers or the web, I never use it.  The other is ‘how do I make money on the web?’  ‘I always hear on television people getting rich from the internet I want to do that.’ 

The quickest answer to those questions starting with the second is those people make money from either selling a product or if you’re talking about the people with click troughs they have something on their site people are attracted to. In addition they have a lot of traffic and have advertisers or affiliate banners on their site.  As far as my answer to the first issue - not knowing anything about computers - my answer is simply ‘technology is the way of the future… jump on board and catch up!’

Richard: “I hear that they can do it themselves or they can hire an intern to do it. Both are bad mistakes. Just because anyone can create a Facebook, Twitter, Foursquare or LinkedIn account doesn’t mean that they can effectively market a company that way.  There are many people out here that can use a knife to cut but does that make them a surgeon? Go with a professional and you won’t go wrong!”

One final question on what your company can bring to a newly established business or a company looking to turn the corner to go to another level?

JC: “My company is a business development group which means we will assist you and your business from planning to inception.  We mainly focus on online solutions however we’re experienced in assisting business with developing their locations as well. “

Richard: “We specialize on bringing awareness to a brand through social media, engaging with their community to enhance awareness and monitor the brand's reputation. Simply put we worry about social media so the business owner doesn't have to.”

I would like to personally thank Mr. JC Brillant and Mr. Richard Bonilla for taking time out of their busy schedules in order to participate in this interview.  There contact information is below if you need their services:

JC Brillant                                                                

EyeBottomLine.com Development Group Inc       

Web: Eyebottomline.com                                        

Twitter (Bus): @EyeBottomLine                           

Twitter (personal): @jcbrillant                               

Email: jcb@eyebottomline.com                              

Richard Bonilla

Feedcast Media Group Inc

Web: Feedcastmedia.com

Twitter (biz): @Feedcastmedia

Twitter (pers): @richardbonilla

Richard@feedcastmedia.com 

Why Do I Need That?

Some times people view financial literacy as something they don’t need or think that they already have.  This article is not to debate either of those facts or deceptions.  It is simply meant to get each of us to think about the need for true financial literacy.  Below I have compiled a small list of life issues that require some level of financial literacy.  Remember what you don’t know can really hurt you, so let’s get educated and use that education wisely.  Here is that short list of life events:

Marriage                                 College education

Obtaining a loan                      Purchasing a car

Sickness                                 Retirement

Parenting                                Improving and evaluating your credit

Obtaining insurance                 Purchasing a home

Divorce                                  Death of a loved one

Investing

Each of these situations requires financial literacy.  Depending on how financially literate you are will determine the type of decision you make. Get educated; educated people are in position to make educated choices.  Others are simply rolling the dice and hoping something good happens! 

You can also seek the assistance of a professional in these areas as well.

Worried About Investing?


Are you worried about investing?  If you are like most US residents the answer is probably yes.  Based on a survey only 2 out of 3 US citizens have a savings or retirement account.  That is a third of the population.  Now obviously saving is not investing.  The point is that is if a third of American isn't saving they are probably not investing either, as the two usually go together.

Here is a quick way to begin investing - ETFs or Exchanged Traded Funds.  Please understand, I am not saying that this is the best way to invest but it is a quick way, let me show you how.  These funds are securities that track a particualr index or commodity. For instance let's say use want to invest in gold, you would look up the ticker symbol GLD and see how the gold index is doing. Please understand that the values of these ETFs change rapidly so it is always good to do two things:

Do your homework - ETFs are great but you want to track the past progress of these funds to see if they are a good fit for you.

Ask a professional - speak with a financial planner regarding your investment in ETFs.

Leveraging Education

Many of us were taught as young children by our parents or guardians to go to school, get good grades and get a good job.  Typically there is nothing wrong with this advice, but I would like to show you something.

According to the US Department of Education in 2008 the average annual salary for a male high school graduate was $32,000.00 and a male college graduate (bachelor’s degree) was $55,000.00.  The numbers for female graduates was $25,000.00 and $45,000.00 respectively.  This means on average there is a 72% increase in the income of males if they graduate from college as opposed to simply finishing high school.  For the females there is a 80% increase. 

What does all of this mean?  Obviously, we have to exclude the entertainers, athletes and the college drop outs that are currently rich – this is a small percentage of the population in America and even smaller percentage when factoring in the rest of the world.  Here is what it means?

First, push through the tough four to five years to gain your undergraduate degree.  Obviously from the numbers presented here you will do better financially if you persevere. 

Secondly, it means that by the time you are 60 years old you would have earned well over a million dollars.  Say what?  Based on the average salary of high school graduates males would hit the mark in a little over 31 years and females in 40 years.  College graduates would hit the million dollar mark in less time (18 years for males and 22 years for females). 

That means you are either a millionaire now or you are a millionaire in the making!

EAV_BLOG_VER:ef8a07e8e2102878

Tightening The Belt

With America's credit rating being downgraded it should be a clear clue to each of us that we have to make some changes.

What types of changes are necessary? There are three changes that I believe we should make immediately.

Change the way we view credit.

With the average American household being in more than $16k in credit card debt we need to see change. Many view credit as a means to access more cash when they don't actually have the cash. This is the wrong mentality to have.

Credit is designed to assist a responsible person or business to use the bank's money while theirs is being invested. The idea here is that you and I should only use credit cards if there is an extreme emergency and we don't have the cash or if our money is being invested in something that is earning more of interest than we are paying the bank. If neither of these are the case, then we should keep the plastic in our pockets.

Change our posture on needs and wants.

There has to be a clear definition for each of us as to what a “need” is and what a “want” is. Here is the way I view the two. A “need” is something that is essential to survival (i.e. shelter, clothing, food). A “want” is anything outside of a need. For instance, I need shelter but I may want to live in one of the most exclusive zip codes in my city. This is where many people get it wrong. It is human, especially in America, to confuse a need with a want.

The second part of the definition is that once the “need” has been meet and there is the financially wherewithal to afford anything else, we can then and only then, explore the acquisition of any “wants.”

Do you have a clear definition of the two? If not, you have to develop one and prioritize your needs over your wants.

Change the manner in which we spend.

This bleeds from the second point. We have to learn to live beneath our means. Typically the first step in doing this is to learn to live on eighty percent of our net income. After mastering that, the next step is to live on fifty percent of our net income. How do you do that you may ask?

This can be accomplished by following the items in this blog, creating a budget and sticking to them both.

You can do it!
Go get 'em!

Financial Disciplines

These financial disciplines are for everyone, no matter how much money one earns.  If these disciplines are adhered to it will make a huge difference in a person's financial situation.  Here is a quick laundry list:

1. Create a budget - this is a priority a budget is literally a road map to your finances.  Without it you won't know if you are losing money or where you might be spending to much.

2. Manage your debt - always know how much debt you have, it is a necessity in an attempt to manage your finances better.  In this category include outstanding mortgage amount, credit card debt, student loans, medical bills and your monthly debt.

3. Increase your financial literacy - there is so much information out there but if you don't know what it means then you may have difficulty preparing and identifying changes as they relate to finance.  This might mean you will need to have a financial adviser or coach to explain certain information.

4. Develop assets - this is a must.  Assets are items that increase (or in some cases decrease) in value over time.  This is really the only way to get ahead in the game.  In asset which carries value can be sold or leveraged for cash.

5. Develop a plan to save and invest - this is where you setup an account to save for those "rainy days" ahead, vacation, etc.  If you have two or more reasons to save I would suggest to have separate accounts for each need (i.e rainy day account and vacation savings account, etc).  In addition to this you want to develop an investment strategy.

6. Be a money manager - money managers know the difference between need and desires.  They are able to sacrifice desires for need and not get swayed another way.  Money managers stay on top of their bills.

7. Check your credit at least once per year and do a financial assessment - this new financial disciplined life will begin to payoff dividends shortly.  Therefore check your credit annually to ensure that you see scores increasing and verify that all accounts on your report are actual yours. In addition do an assessment of all of your financial accounts quarterly (minimum).  You want to see if how much your investments are earning and the amount that you have saved up.

7. Have fun but be disciplined - this level of discipline isn't without fun, in fact it will allow you to enjoy life   even more than you are currently doing.  Continue to practice these simple financial disciplines for another year and see how far you have come.

Now get to it!

Your Retirement's Life or Death

During this time there are many who will retire within the next two to three years.  This a great thing but I ask this question, are you prepared to retire?  Before you answer think about this -

1. The US is slowly increasing the minimum eligibility age to receive full social security benefits.

2. Many employer sponsored retirements plans have yet to earn its losses back from the downturn we began to experience about six years ago.

3. The US economy, and the world's economy, has not reached a TRUE bottom yet.

4. Many of us have not experienced nor considered another factor known as inflation inflation.

What is inflation?  In simple terms inflation is the rate the prices for goods and services rise and the purchasing power for the same things falls.  Perfect example is that a little over six years ago the average price was $2.23 per gallon, today that average is $3.62 per gallon.  

This means with $20.00 in 2006 you and I would have been able to buy just under 9 gallons of gas.  Today we would only be able to buy 5.5 gallons.  Imagine a spike in inflation while you are on a fixed income, exactly it could be the death of your retirement, especially if the rate of inflation is rising faster than the rate of your investment.

Is there any relief from this possibility?  Of course there is, the relief is building assets.  Assets have the unique ability to increase in value even in tough economic times.  What asset can you build?  There are several including real estate, businesses, collection items, etc.  Look to build assets into your retirement.