financial zen

So I got a few answers in my educational quest on estate taxes. I talked to an accountant that said if the deceased had paid taxes all ready, than I have nothing to worry about unless it’s property that needs to be sold.

Of course, I used my google-fu to supplement this answer and the always informative bankrate.com has the answer:

*Ohio has no inheritance tax.

*Because federal tax law totally repealed the federal credit allowed for state death taxes for dates of death occurring on or after Jan. 1, 2005, the Ohio Additional Tax on estates is constructively repealed. This change is prospective and applies to decedents’ dates of death occurring on or after July 1, 2005.

So now, once the cash is “in hand” I need to constructively figure out how I’m going to leverage it towards investing it - and doubling it!

I’ve mentioned before you should have an emergency fund - and I hit one of those snags that shows how important it is to have one. We have two cars (both Honda Civics) which both needed major repairs - timing belts, water pumps, and exhaust work. My car - the old beater - was less than $400 (which also goes to show - find a trustworthy mechanic! I was quoted $600 at the first place I went to!)

The nicer, newer car? Nearly $1000. Needs a new exhaust manifold. That, needless to say, was a shocker. With the new baby, I really hate having only one car available at a time, and “exhaust leaks in the front of the car” cause me some concern when I’ve got a growing boy in the back seat, so of course I had him fix it (and I use this mechanic repeatedly because he’s always straight, never lies, and has been a friend of my wife’s family for years).

Luckily, we’ve got nearly $5000 set aside for emergencies, so this will greatly offset any ding that it would’ve otherwise caused. See how important an emergency fund can be when you’re prepared? $1400 is more than my mortgage payment - which means if I wasn’t prepared, this would go onto a credit card, which I couldn’t pay off immediately, giving me interest charges for the next few months (more than likely!)

Because I was prepared - I can pay off these charges right away, without worry! No worrying about not meeting any bills, no worries about “how can I handle this” - a true moment of Financial Zen. My wife was taken back by my tone when I initially told her - and through no fault but my own she was concerned. We try and talk weekly about our finances, but with the baby being born it’s sidetracked us both - but because we are prepared, it’s a non-issue.

Whew!

So SmartMoney is running an article - Private Colleges Can Be Just as Affordable as Public Ones - showing that Private Schools can be as affordable as public ones. How can that be so?

Private Universities tend to be a bit more open with their pocket books, so to speak.
Why a pricey private school could be cheaper
1. Privates have more money to give
I’ve seen this time and time again, with a few friends and relatives going to a private university - and having bills substantially lower than their in-state public college.

2. They meet a bigger percentage of need

3. They’re more willing to consider special circumstances
Private colleges basically are more friendly and understanding - and I’ve definitely witnessed this with my sister’s dealing with the financial aid office, and my repeated problems dealing with public universities.

4. Your child may graduate sooner
As a fact - my sister did. The relatives in public schools? We’re still trucking towards the five-year (or longer) route.

The point is - never rule anything out. You have to try before you can fail, and be told “NO” in writing before it isn’t an option. If you don’t try, you’ll always fail!

For most people, an understand of economics isn’t necessary. You’ve got your checking account under control - you’ve got your own online billpay, you don’t send checks to Nigerian princes, and you don’t link any accounts to deduct from your account, you’ve got your savings accounts under control (speaking of which, I have ING referrals available! Make free cash by having a deposit!), you contribute to your 401k, have a financial planner, you’ve got everything going for you. But maybe you’d like to understand it a little more.

This leads us into Economics!

Understanding economics is important in personal finance - not just because of investments (like your 401k) - but because you should understand the current economic environment so you can forecast the state of the economy, inflation, and interest rates for the future. Essentially, you’re keeping your eyes open for any changes in the market that could be detrimental to your financial situation - whether you consider yourself successful, or on your way. The state of the economy can turn your life upside down if you aren’t preparing for it.

If you lose your job, suddenly your steady income is gone. Did you prepare an emergency fund? Are your financial affairs in order? If there’s a recession, is your job secure enough to not worry about lay-offs? Can your hours be cut but it won’t affect you detrimentally in your finances? Many factors can come into play - but the amount of information involved, between inflation, recessions and expansions, can take volumes to fully understand! I’m going to work additional articles in covering these certain angles this week so we can benefit and further our Personal Finance knowledge.

The real measure of your wealth is how much you’d be worth if you lost all your money. ~Author Unknown

As I wrote about the fundamentals of personal finance success - and the fundamental truth of saving more than you spend to reach wealth, it’s important to recognize what that exactly means.

You can save all your money, live in your car until your debts are paid off, live at home and mooch - basically you can spend as little as possible now so you can have a lot of money in ten to twenty years, sleeping on a couch, eating ramen, and walking everywhere.

Or you can buy a car, live in an apartment, make your own lunch, buy used, and spend less than you earn. You can still have an occasional night out, party on occasion, go to Europe - it just means being mindful with your money. But how can you do this on a limited income?

Very easily. Cut out the unnecessary expenses. No cable, no memberships, no magazines. Okay, you want cable? Get basic. Skip the DVR package and the “VOD - only $10/month!” ‘deals.’ Go to the library. Read more. Go to the park to jog. Pick up some used weights on ebay or craigslist. The point is - be frugal not cheap. You don’t need a huge house that you can’t afford - I don’t care if you think you can afford it in a few more years, that’s moronic. If you knew tomorrow you were winning the jackpot billionaire lottery - but only made $26,000 a year now, and you were thinking of getting a new car/house/xbox/whatever - treat it as if you only had the $26,000. Oddly enough, I heard someone talking to a friend at an old apartment (back when I made $11/hour as a trainer):

You do not go out and buy a Bentley because you think you deserve one. You do not buy one because you think you can afford it in a year. The car does not make the player! When you are set, you will know you can buy the Bentley outright because you can get it if you want it, not because you need it.

There be wisdom in these walls! The guy who said it made a decent living in a factory, drove a convertible, and lived in off-campus housing. Cheap housing that allowed him to buy the material possessions he wanted. Not necessarily the best move financially, but wiser than buying a bentley, a mansion, and maxing out credit cards to give the illusion of wealth. You earn your lifestyle, you don’t choose it.

No doubt everyone’s heard of the guy who tried to flip houses by lying on his credit applications saying he made more money (which they made no effort to check or clarify, either). Here’s a stripper in 24 million debt because she wanted to quit her life and find a new way - and instead of researching she signed her life away, ruining her credit while the brokerage got to inflate housing prices. Do not be duped by easy money. There is no such thing.

Let’s look at it this way - you want to retire rich? Then set aside some money now.CNNMoney has a useful retirement calculator to help figure out how much money you want to live on and when you want to retire. There are a lot of factors involved, and it’s something you should always be working towards - so don’t think your plan is set from day one - it’ll need constant nurturing, but as you watch your retirement fund grow, you’ll realize it’s worth it. Just don’t put off your life until then - I’ve met many an old couple that says they wished they spent more money when they were younger to travel and do the things they can’t do because of their age - and seldom have I met an old couple that regrets traveling or managing their money for trips.

Just remember - manage your debt, spend less than you make, and focus on your long-term goals while keeping yourself satisfied and happy in the present. A delicate balance, but one that you (your loved ones) will enjoy!

(Read more stories of how other people paid off debt at Chris Pirillo’s blog)

My problem lies in reconciling my gross habits with my net income. -Errol Flynn

People are often confused with financial planning - they mix up three basic fundamental ideas, or combine them and create a skewed, warped version that makes financial planning a complicated ordeal. Financial success is meeting our plans and goals and reaching a certain milestone in our expectations of finance:
Security is reaching that point with your finances that you are comfortable with your money and savings that will cover your needs and your wants.
Wealth is having an abundance of money, investments, and resources. A fundamental truth is that in order to build wealth you must spend less than you earn. You must hold off on your current standard of living to reach a higher standard of living.
Happiness goes beyond making more money. It’s about being in a good position of your finances and bills - you are on the way of reaching your goals with well-established, healthy financial goals.

Of course, it seems every way we turn we encounter impediments to our financial success. The second your of legal credit-bearing age the offers start. When you reach college campuses you’re surrounded by companies wanting you to sign with them for credit card offers, loans for an over-priced computer, for a new car you don’t need. Money is thrown at the 18+ crowd by telling them how important it is to build credit, and also to give the appearance that you have wealth - get your Abercrombie and Fitch credit cards and dress for success! Give that illusion of richness by driving a brand new Acura! It doesn’t matter that you’re drowning in debt… does it?

OF COURSE IT DOES! It’s important that you establish your financial foundation - use your current and regular income to provide your basic lifestyle and savings. Once you’ve got your foundation, you can continue on your financial journey (where we will continue down the road).

“A failure to plan is a plan for failure”

I don’t know about you, but I fell into the interest of personal finance from getting into reading blogs. The more I read, the more it intrigued me. It reminded me of the past experiences and money mistakes. Perhaps most people are put off by their lack of understanding terms - meaning they need to improve their financial literacy (the knowledge of facts, concepts, principles, and technological tools that are fundamental to being smart about money). This leads to most people learning about personal financial planning and developing and implementing a coordinated and integrated long-range plans to achieve financial success.

In planning, we hold ourselves responsible for our own success, happiness, and establishment of our security and standard of living (in the present and the future). It’s a huge part of our life that many people ignore until it’s too late - and then they learn from their mistakes, but it costs them (potentially) thousands of dollars, or wrecks their credit rating (which can potentially effect your employment, your mortgage, your car purchase… every financial aspect of your life). It’s my goal as I continue my education to get a better understanding and establish a better budget and mind set - I don’t mean miserly, I don’t mean “living like no other today so you can live like no other tomorrow” - I mean being able to save up for vacations without putting it all on credit, buying a car with cash, and using credit card arbitrage to its full potential. It’s a difficult premise, but then again, life isn’t easy.

The Six Steps to Personal Finance Success

1. Financial planning, focusing on establishing and achieving long-term goals through planning and budgeting,
2. Money management, centering on minimizing income taxes and efficient utilization of cash and credit,
3. Managing expenditures, especially for “big ticket” items such as vehicles and housing,
4. Income and asset protection through insurance, so that hard-earned resources and assets are not placed at undue risk,
5. Investment planning, with its focus on selecting the appropriate investment vehicles based on the objectives at hand and the relative levels of investment risk, and
6. Retirement and estate planning, with the ultimate goal of being able to live off of one’s financial nest egg and plan for transfer of assets to heirs.

It’s never just a simple process - fortunately we have trained professionals to assist. Certified Financial Planners can help you plan with these six steps, and Certified Public Accountants can help you get your finances together and straightened out. Over the next few months I’m planning on elaborating on these six points - from an educational stand point, as I am not a CFP, CPA, or any other TLA.