General Financial Planning

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2013/2014: Key Financial Planning Numbers

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 As we approach year-end (yes, already!), it is time to determine what needs to be done to reach your 2013 financial goals AND start preparing for 2014.  The 2014 Contribution and Annual Gifting Limits were recently released, and they remain unchanged from 2013 limits.  Here is summary of the existing limits for your reference.

If you haven’t completed your retirement plan contributions or gifting for 2013, find time to connect with your financial planner to make sure you meet the appropriate deadlines.  And make plans now to coordinate with your planner to set your 2014 goals!

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

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Compartmentalize Your Finances

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 Love Starbucks? A lot of us do, but try answering this question I recently heard posed by a behavioral finance professor:  “Would you be more inclined to order a latte that was advertised as 95% fat free, or one labeled 5% fat?”  The two $5 drinks are the exact same, however, I would venture to say 99.9% of people (including me) would choose the drink that was advertised as 95% fat free.  Perception is as powerful force in the coffee world as it is in the investment world. Perception can work against you when it comes to savings or it can fuel you. Much of that depends on how you compartmentalize.

The Behavioral Finance of Compartmentalizing

So what does it mean to compartmentalize?  Simply put it is separating two or more things from each other.  In personal finance, separating certain accounts to have individual goals can have a tremendous effect on the likelihood of savings and overall success of the individual’s financial plan.  For instance, one of the most important pieces of a financial plan is maintaining an adequate emergency fund for the dreaded unknowns – such as job loss, unexpected home improvements, medical expenses, etc. (The Center team usually recommends that clients maintain 3 – 12 months of living expenses in a cash account that is not subject to market risk). 

Establish Separate Accounts

If you find yourself constantly transferring funds from your savings to your checking account each month because they are at the same institution and the ease of the transfer is just to easy to resist, consider making a change!  Why not open a savings account at a completely different financial institution and maintain your emergency fund there, knowing this money cannot be touched except for an emergency. 

Give it a Label

Many banks now allow you to name an account and personalize it.  So instead of seeing your account being titled as “Savings” each time you log in, it would read “Emergency fund – don’t touch!”  Adding that “name” or “purpose” to the account has been proven to dramatically increase savings levels and decrease the likelihood of spending out of the account. 

Keep it Simple

Separating accounts for each individual goal in retirement, however, is pretty unrealistic.  Who wants to have 20 different IRA accounts?  At The Center, we like to keep things simple to stay organized and on track.  However, our advisors do encourage clients to compartmentalize in their minds when looking at their overall stock/bond/cash allocation to stay focused and not lose track of the purpose of each type of asset that is held within the portfolio.  Each “bucket” of funds has a purpose and impact on the total portfolio and it is The Center’s job as your trusted advisor team to help you fill each one and utilize them to their maximum potential.  

Nick Defenthaler, CFP® is a Support Associate at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

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Step Up in Basis Part 1: A Key to Understanding Your Inheritance

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If you stand to inherit assets, it is crucial that you get the gist of the often-misunderstood concept of step up in basis. This is an area that is more pertinent then ever before as the aging U.S. population looks to transfer a large amount of wealth to the next generation.  The rules are a little different depending on what type of asset you are dealing with, but this blog is going to focus on “real assets” such as property.

In order to fully understand this topic, you need to know what cost basis means.  Your cost basis is simply how much you paid for something.  If you bought some land for $10,000 then your cost basis in the property is $10,000.  If that property appreciates in value and you sell it for $100,000 then you have realized a $90,000 capital gain.  The IRS allows you to subtract the original $10,000 (your cost basis) from the $100,000 sale price because you already paid tax on the $10,000.

Next you need to understand what step up in basis means.  A step up in basis typically occurs when somebody dies and leaves assets to their heirs.  Using our land example again, let’s say that Mom bought a property back in 1960 for $10,000 and left it to you in her will when she died.  The fair market value upon Mom’s death is $100,000.  If Mom sells the property the day before she died she would have a $90,000 capital gain.  However, if Mom leaves the property to you in her will, and you decided to sell it the day after the funeral, you would pay no capital gains tax on the sale proceeds.  The reason for this is that the IRS gives you a full step up in basis at the date of death.  So the $10,000 cost basis that represents the property’s original purchase price is now stepped up to the current market value of $100,000.

In our next blog, we will focus on step up in basis when you are dealing with securities such as stocks, bonds, mutual funds, etc.

Matthew Trujillo is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation.  While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors, of RJFS, we are not qualified to render advice on tax or legal matters.  You should discuss tax or legal matters with the appropriate professional.

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Vacation Homes: Dreams or Nightmares?

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Each year in August, and again in January, after trips to a warm destinations for summer or winter fabulous summer vacations, we get calls from clients who have found their dream “home away from home”.  The dream is usually a condo located at a favorite vacation spot and a place where they can drive up, find a warm bed waiting, and the next day the beach beckons for a relaxing walk.

But hold on just a minute.  When you open those doors you might also find a leaky toilet or a few critters who also like your home.  It is then you begin to discover there are many good things about a second home but also lots to think about before signing on the dotted line. Here are a few checklist items for your consideration:

Location and Use

  • How often will it be used? 

  • Is it easy to get to or is the expense of getting there a consideration?

  • Are you close to attractive features? 

  • Is it a desirable property in case you wish to sell?

Maintenance

  • Older condos may be ready for big outside assessments and lots of inside updates as well. Ongoing maintenance is a necessity when you own property regardless of age.   It is also the biggest complaint of owners.  If the property is rented, both the need for maintenance and complaints triple. Who is going to take care of maintenance and what is the cost?

  • If the renters are family members how are increased utility bills going to be handled---yes they can be substantial.

Amenities 

  • You may have fallen in love with the swimming pool but are you going to use the tennis courts, golf course and clubhouse? You will be paying for them.

Costs   

  • The purchase cost is just the beginning.  The monthly association dues rarely go down.  Periodic assessments for parking lots and landscaping can be substantial. 

  • You also need to know about insurance costs and added on fees for particular activities or uses.

  • Furniture is also a consideration.

If you find the monthly costs are going to strain your budget, you might want to rethink the decision to buy.  One couple had a sound practice of not financing a second home until the first one was paid in full. If you are relying on rentals to cover most of the costs, it is best to have a contingency plan since renters may be scarce in poor economic times.

A second home can be a wonderful place for the family to gather and for you to have a relaxing respite from daily demands.  Like most things in life, make sure it will bring you satisfaction that you can afford.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Who are the Quality Financial Planners?

 October is Financial Planning Month and Center Partner Tim Wyman takes this opportunity to bring us back to the basics. In this blog 5-part series he clarifies some general questions about financial planning and the financial planning process. 

There are many individuals and companies in the financial services industry to choose from based on your specific needs.  There are large firms in addition to wire house firms.  

Determining who the “best” is challenging and you should be sure to interview a couple to determine a good fit.  Do they work with others like you? Are they experienced in working with similar issues as yours? Are you comfortable with their costs? 

Ultimately a financial planning relationship is a personal relationship.  Regardless of what firm you choose to work with, it is critical that you feel a high degree of confidence in trust with the INDIVIDUALS that you will be working with to accomplish your objectives.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Clients should evaluate if an asset-based fee is appropriate in servicing their needs.  A list of additional considerations, as well as the fee schedule, is available in the firm’s Form ADV Part II as well as in the client agreement.

Your Financial Plan: How to Prepare & How Much Does it Cost?

 October is Financial Planning Month and Center Partner Tim Wyman takes this opportunity to bring us back to the basics. In this blog 5-part series he clarifies some general questions about financial planning and the financial planning process. 

A financial plan can be prepared on your own or with the assistance of a professional.  If you choose to work with a professional, a Certified Financial Planner™ practitioner is suggested since they are trained to provide a comprehensive review.  Regardless, if you choose to do it on your own or work with a professional, there are common steps.

6 most common steps in the process: 

  1. Gather Personal and Financial Data
  2. Establish Goals
  3. Process & Analyze Information
  4. Develop Comprehensive Plan
  5. Implement the Plan
  6. Monitor the Plan 

The cost of a financial plan will vary depending upon the experience of the professional you work with and the complexity of your situation.  In many cases, the fee may range from $500 to several thousand dollars – again based on the complexity. 

In the final blog of this 5-part series, we’ll look at who the best financial planners are. 

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Clients should evaluate if an asset-based fee is appropriate in servicing their needs.  A list of additional considerations, as well as the fee schedule, is available in the firm’s Form ADV Part II as well as in the client agreement.

A Financial Plan: What is it & Who needs one?

 October is Financial Planning Month and Center Partner Tim Wyman takes this opportunity to bring us back to the basics. In this blog 5-part series he clarifies some general questions about financial planning and the financial planning process. 

I must admit, I cringe a bit when hearing the question, “What is a financial plan?” That’s because of my firm belief that the focus should be on the “ing” in planning.  However, a financial plan, done correctly, is a comprehensive road map designed to assist in achieving whatever goals are important to you.  

A financial plan should include analysis and recommendations in areas such as: 

  • Cash management and financial statements
  • A review of risk management needs
  • Analysis as to needed retirement savings goals
  • A plan to reduce income tax liability
  • A comprehensive investment plan
  • Coordination of estate goals 

Most importantly, a financial plan should be an ongoing guide and not a leather binder placed on the shelf to collect dust!  A financial plan can be used to align financial strategies and decisions as life events occur. 

Do I need a financial plan? 

Who needs a financial plan? Financial planning provides a method or structure to help you achieve your life’s goals, no matter how wealthy (or unwealthy) you are.  Whether you work with a Certified Financial Planner™ practitioner or do it on your own, the financial planning process can be the catalyst in making good decisions and achieving your financial goals. 

In the 4th blog of this 5-part series, we’ll look at how to prepare a financial plan and how much it might cost you.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Clients should evaluate if an asset-based fee is appropriate in servicing their needs.  A list of additional considerations, as well as the fee schedule, is available in the firm’s Form ADV Part II as well as in the client agreement.

Is Wealth Management different than Financial Planning?

 October is Financial Planning Month and Center Partner Tim Wyman takes this opportunity to bring us back to the basics. In this blog 5-part series he clarifies some general questions about financial planning and the financial planning process. 

The financial planning profession is still a relatively new profession and continues to develop and mature. In the last ten years or so, some firms have begun using the phrase “Wealth Management” to describe their services.  Essentially, some firms wanted to differentiate themselves to higher income and higher net worth clients.  In many cases, Wealth Management and Financial Planning are synonyms.  There are many fine financial planners and firms in the country, unfortunately financial planning to many companies in the financial services industry is not a process; rather it is a tactic used to sell financial products.  From my perspective, the use of other names such as “wealth management” is for marketing and positioning reasons. 

In the end, financial success, like anything worthwhile, takes patience and persistence. Financial planning or wealth management done right is the process of assessing your financial goals and then developing appropriate strategies to accomplish those goals without taking unnecessary risks.  Simply stated, the purpose of financial planning is to efficiently allocate your current and future financial resources. Proper financial planning requires an ongoing series of decisions made on your part, based on interaction between you and all your advisors.  Lastly, regular updates and reviews are necessary to keep you on course and to provide you with the opportunity to make any necessary adjustments as financial conditions change. 

In my next blog, we’ll discuss who needs a financial plan and in the final installment of this series find out how to prepare your financial plan and how much it will cost. 

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Clients should evaluate if an asset-based fee is appropriate in servicing their needs.  A list of additional considerations, as well as the fee schedule, is available in the firm’s Form ADV Part II as well as in the client agreement.

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What is Financial Planning?

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October is Financial Planning Month and Center Partner Tim Wyman takes this opportunity to bring us back to the basics. In this blog 5-part series he clarifies some general questions about financial planning and the financial planning process.

Ok, figuring out financial planning may not be as deep as asking “what is the meaning of life”, but I would assert that pondering both can potentially be life changing. According to the Financial Planning Association®: Financial planning is the long-term process of wisely managing your finances so you can achieve your goals and dreams, while at the same time negotiating the financial barriers that inevitably arise in every stage of life. Remember, financial planning is a process, not a product.  Before we get too far, let’s be sure to acknowledge that financial planning is not about get-rich schemes or simply betting on the latest stock tip. 

Funding Life’s Goals

As an early leader in the financial planning profession, we at Center for Financial Planning view and practice financial planning in a different manner than many.  Financial planning is all about you – your goals – your family – your financial independence.  For most, money is not the end but merely the means.  Many of life’s goals [sending kids and grandkids to college, funding retirement, starting a business, passing values and asset values to the next generation, etc.] do indeed have a money or financial aspect. So it is critical that you make good financial decisions.  Financial planning provides direction, discipline and structure to improve financial decision-making and, dare I suggest, has the power to improve lives.  

A Coordinated & Comprehensive Approach

Years ago I was an adjunct professor at Oakland University. On the first day of class, I always started with the assertion, “Financial Planning provides a coordinated and comprehensive approach to achieving your goals,” (it was always question one on the first quiz, by the way). If a coordinated and comprehensive approach is not taken, you are simply left with a junk drawer of decisions and purchases. Without a comprehensive and coordinated strategy, people buy some insurance … put it in the drawer, buy a mutual fund or stock … put it in the drawer … have a living trust drafted … put it in the drawer.  Over the years, the individual pieces don’t actually fit together and all that is left is a drawer of stuff (that’s usually impossible to sort through as well). 

Integrating Goals with Approach

The financial planning process integrates or coordinates your resources (assets and income) with your goals and objectives. As you do this, here are some key points you should cover: 

  • Goal identification and clarification

  • Developing your Net Worth Statement

  • Preparing cash flow estimates

  • Analysis of income tax returns and strategies designed to help decrease tax liability

  • Review of risk management areas such as life insurance, disability, long term care, and property & casualty insurance.

  • College funding goals for children or grandchildren.

  • Comprehensive investment management and ongoing monitoring of investments

  • Financial independence and retirement income analysis

  • Estate and charitable giving strategies

In my next blog, we’ll delve into the difference between wealth management and financial planning. Then we’ll take a closer look at a financial plan, who needs one, and how much you can expect to pay for it. 

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Clients should evaluate if an asset-based fee is appropriate in servicing their needs.  A list of additional considerations, as well as the fee schedule, is available in the firm’s Form ADV Part II as well as in the client agreement.

Say “I Do” to your Wedding Budget

 Approaching retirement, the birth of a child, or writing that first tuition check for college … these are all life events financial planners help clients with on a daily basis. A wedding, as I have found out from first-hand experience over the past year, is certainly one of these major financial milestones that can be overlooked or underestimated.  Last September, I became engaged to my best friend and love of my life, Robin.  We were both beyond excited to start our journey together and begin the wedding planning.  But as we both quickly found out, nothing about a wedding is cheap!  There were some things I have learned throughout the wedding planning process that I think can truly help couples during this stressful, overwhelming but very fun time.

Things I have learned

  • Find out early on what type of financial assistance (if any) is available from family.  This will help immensely to avoid confusion and keep everyone on the same page.
  • Sit down together and take a look at your existing cash flow figures and create a REALISTIC budget that they both of you agree upon and stick to it!
  • Take a close look at your personal savings accounts and determine how much you can afford to draw from those accounts while still leaving funds available for an emergency fund (we typically recommend keeping 3 – 12 months of cash reserves, depending on the client’s situation).
  • Be aware of the potential consequences of using retirement accounts, such as an IRA or 401k to pay for wedding expenses (early withdrawal penalties, excess tax, lack of long term growth, etc.).
  • Do your best to stay away from personal loans.  These types of loans often require a form of collateral, and usually carry hefty interest rates. 
  • Consider RESPONSIBLY utilizing low interest credit cards for a portion of expenses.  Many cards offer 0% rates for 12 – 24 months and, if paid off within this time frame, can be a great tool to help with the incoming costs while planning.    
  • Guys – help your fiancé!  You probably don’t care about how the napkins will be folded at the reception, but taking things off of her plate such as honeymoon planning or researching vendors can really go a long way. 
  • Most importantly – HAVE FUN!  At times, the planning won’t be, but take a step back and realize what the two of you are planning for together and enjoy it! 

As our October wedding approaches, we are in the home stretch and finalizing the last details that make my head spin.  It was not always a smooth or easy ride but knowing I get to spend the rest of my life with Robin has made all of the stress more than worth it.  Know what you can afford, stay on budget and be responsible, just like any other major financial event.  With proper planning and help from your financial advisor, the process will go much smoother and keep the both of you sane!

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Live YOUR Plan™