Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

As usual, Congress has passed a new spending bill with a long, complex name. Despite the tax savings (tax rate preservation) that comes with this bill, it also includes additional deficit spending, which has become the normal way of doing things in Washington the past several years. Political opinions aside, I will summarize a few of the highlights of this bill:

1) Extension of all current tax rates through 2012

2) Temporary modification of Estate, Gift and Generation-Skipping Transfer Tax for 2010-2012

3) AMT Patch for 2010 and 2011

4) Extension of "tax extenders" for 2010 and 2011

5) Temporary Employee Payroll Tax Cut

The average American might wonder what all of this means. With the exception of the new estate tax rates, Congress and the President have left our tax system very similar to how it is now for an additional two years. Most tax filers will see a tax return similar to 2009 for 2010 and 2011. One temporary tax reduction is the payroll tax "holiday" that reduces payroll taxes by 2%, saving most working Americans between $800 and $2,000 during 2011.

Although keeping tax rates low and temporarily reducing the payroll tax will provide a short-term boost to the economy, I feel that a better, longer-term, strategic approach to providing government services and funding our government is needed. We should let Americans work hard and innovate as they have in the past and the jobs and prosperity will follow. In the meantime, each of us should take a hard look at our personal financial situations and make any necessary adjustments in order to put our individual financial houses in order.

Long-Term Solutions

The bipartisan National Commission on Fiscal Responsibility and Reform has recently released some suggestions about how to reduce the massive federal budget deficit in the United States. One area that is being addressed is Social Security. In order to avoid massive reductions in benefits in the year 2037 (coincidentally the year I turn 65), the commission has recommended taxing more earnings, adjusting the benefit formula and indexing the retirement age, among other things. Although I don't want to debate the political merits of the various proposals at this point, I do feel that addressing significant problems with the federal budget with sustainable long-term solutions is exactly what our government should be doing. Although the outcome is yet to be determined, it is encouraging to see solutions being proposed.

I feel that my role as a financial planner is also to provide long-term solutions. My professional responsibilities can be compared to a doctor focused on health and prevention. I recommend that my clients have a financial "check-up" at least once a year. At these meetings I "prescribe" adjustments that will keep my clients' financial lives "healthy" and avoid "diseases" that might develop if financial "health" is not maintained. As it is in many areas of life, focusing on long-term solutions as opposed to short-term "band-aids" is the key to keeping our households and our nation on a "healthy" path.

Hard Work & Determination

I have heard about several employers recently that have positions to fill but are having trouble keeping them filled due to inadequate employee contributions. The news headlines might tell us otherwise, but there are jobs available to those willing to work hard, develop skills and be adaptable to change and progress. I realize that there have been dramatic shifts in the economy and things aren't the way they were before, but I feel like many of our problems could be solved by some more hard work and determination.

Although there might be a few rare exceptions, the key to a comfortable financial future is based on the same things. A realistic financial plan involves assessing one's current situation, setting realistic goals for the future and then putting in the hard work of saving, sacrificing and being determined to reach one's financial goals. In addition, it's the journey that often provides most of the fulfillment, not the destination.

I recently heard a presentation from a financially independent individual who encourages more hard work. Why would someone who doesn't "have to work" encourage the opposite. He has experienced a period in his life without work and it did not fulfill him. As a result, he has filled his life with meaningful service and reaped the fulfilling rewards that service provides. I would encourage more hard work and determination in all areas of our lives. This is what has led our country to where we are and it is what will help us move beyond our challenges in the future.

The True Principles of Investing

There are numerous sources of investment information in the world, many claiming to have something that will provide an above average return or provide access to exclusive, profitable information. Although I'm open to new sources of investment information, I often view these sources somewhat skeptically until I understand the source of the information and how tried and tested it is.

Although things are changing in the world every day, there are some principles of investing that are as close to truth as it gets in the financial world. First of all, markets work. Various types of investments provide an expected return based on the risk of the investment and markets price these securities commensurate to the risk and expected return.

Second, and related to the first principle, is that investors are rewarded in proportion to the risk they take. This may not seem true in the short run, but over longer periods of time, this is almost always the case.

Third, diversification is a critical investment tool. It allows investors to capture risks that generate expected return but reduce risks that do not. The common phrase for diversification is "Don't put all your eggs in one basket."

Fourth, the appropriate risk or asset allocation is unique to each investor. The various rules of thumb do not apply to every investor. A customized approach considering the risk the investor can tolerate is best.

Finally, costs are variable and should be considered. Although two similar investments may provide similar returns, two investors could end up with vastly different sums of money because of the costs related to accessing these two similar investments. As consumers, we should be aware of the various costs of investing and comfortable with their appropriateness to our situation.

I seek for true principles in any area of my life that help me make more informed, reliable decisions. The investing world has been analyzed and researched for many years in order to uncover what things work when it comes to capital markets. I welcome feedback and discussion as I continue to seek and implement the true principles of investing in my profession.

Uncertainties & Opportunities

The one thing that I become more certain about as life progresses is that life is uncertain. Unexpected illnesses, financial volatility, natural disasters and irresponsible politicians all contribute to this reality. So if this is the case, what is one to do? Considering that this is a financial blog, how does one navigate the uncertainties in the practical areas of life?

1) Expect the unexpected - No matter how certain or predictable something is, consider the alternative. Certain things that were considered reliable in the economy are not as reliable right now, so have a back-up plan in mind.

2) Leave some wiggle room - The American way is often to live life on the edge, take risks and focus on the here and now. America is unique because of our founders' willingness to take risks, but we should consider the risks we are taking on a day-to-day basis and determine if they are really necessary.

3) Accept reality - It is easy to deny dramatic changes in our lives and refuse to adjust to a new reality. When it comes to financial matters, accepting the new reality and making adjustments to it is better than sticking to an outdated way of thinking. This allows for more flexibility is working through challenges and a more reliable plan for the future.

4) Keep a positive attitude - The news headlines and other negative influences can make it easy to get down and give up the fight. We are all better off when we focus on what is in our control and take positive steps to improve our situation. Life might not always turn out how we imagined, but a positive frame of mind is often the key to conquering practical challenges.

I enjoy the challenge of assessing a financial situation, collecting the relevant information and developing a workable plan to move forward. Let me know your questions and challenges and I am happy to see where I might be of assistance.

Is the "Good Life" Only About Money?

As someone who designs financial plans and manages investment portfolios, I'm keenly aware of money and the significant role it plays in our lives. I also understand the peace of mind that comes with having enough money to pay the bills and meet future goals. It is actually this peace of mind and fulfillment that has directed me towards the profession that I'm involved in.

As humans, we are all searching for the "Good Life," where we feel we are spiritually, physically and emotionally healthy. We all want to have good family relationships and friendships that contribute to this state of well being. A certain amount of money or wealth can contribute to this state, but an excessive pursuit of wealth can also detract. As this article summarizes, a sense of purpose really is critical to achieving the good life.

So how does one achieve this sense of purpose? As a financial planner, I work with clients to assess their current financial situation by taking a snapshot of their current assets, liabilities, etc. This can also be done in other areas of ones life. I then discuss goals and dreams with clients to see if they are on track to achieve these aspirations. In addition to finances, one can look to the future in relationships, health and other areas to picture where he or she wants to be. In order to achieve this future state, one must then determine realistic steps along the way that will help to get you where you want to be.

Are you living the "good life?" If not, why not?--and what is your plan to get there? Good luck and enjoy the journey!

The Financial Planning Profession

When choosing a service provider, one often looks for someone with a professional license or credential. While a professional certification is not a guarantee that the service professional will be completely reliable, it does go a long way in guaranteeing that you are working with someone who has met professional educational standards and is subject to an ongoing level of learning.

Although the Certified Public Accountant (CPA) is widely recognized in the fields of financial accounting and tax preparation, a bit of public confusion exists when it comes to the best professional for personal financial advice. Although many titles and designations exist in regards to financial advice, the most recognized and reliable credential is the Certified Financial Planner (CFP) professional. In this unsettling period of economic volatility, it's critical to have a professional that will help you make and keep a financial plan that's best for you and only you.

The Certified Financial Planner Board of Standards was founded 25 years ago this week to foster the highest standards of excellence for financial planners. In order to become a CFP practitioner, one must complete advanced college level studies on nearly 100 topics, compile at least three years of work experience, pass a 10-hour, two day exam and most importantly, agree to uphold the fiduciary standard--which means putting the client's interest first above all others. Does your financial advisor meet these standards?