Financial Health: 8 Ways to Check

8 Ways to Check and/or Protect your Financial Health

Many of us see the doctor for an annual check-up.

Probably, even more of us have our car checked on a routine basis.

Few of us take a holistic view of our financial health, particularly, on a routine basis.

I encourage you to be an early adopter, change this, and become proactive with your financial health.

For our physical health, our doctor might check our weight, blood pressure/pulse, LDL/HDL and then compares the findings to our initial baseline results.

For our financial health, we should also establish a baseline /benchmark and then, periodically compare our results to our previous records,

How are we going to know how we are doing unless we take the time to look?

How are we going to tell if we are getting better if we don’t have an initial baseline to compare to?

The factors that you choose to use are up to you. My list includes possibilities for you to consider. Record your answers & date it. Some responses will result in a number, others will be a yes/no and perhaps initiate a new thought process. Here are my suggestions: 

  1. Determine your Personal Net Worth
  • Create a Balance Sheet: Assets = Liabilities & Equity
  • Assets are the value of what you own; liabilities are what you owe
  • Assets – Liabilities = Equity in a business or your personal Net Worth
  1. Review the Liability limits on your insurance policies (Homeowners, Renters, Auto, Business). Is the limit high enough to protect your Net Worth if something serious happened? You don’t want to leave your “assets” (money) exposed to risk of loss without making the conscious decision to do so.
  1. Cash Flow- Positive or Negative?
  • Money coming in, money going out, and when?
  • Is it steady through out the year or does it fluctuate?
  • Are you spending more than you bring in?
  1. Liquidity – Emergency Fund +
  • Emergency Fund savings for 3-6 months of living expenses?
  • Any other “reserves” you keep – Christmas or vacation fund?
  1. Your Personal Savings rate
  • Do you try to pay yourself first?
  • Are “you” built into your required monthly expenses?
  • Do you fully participate in your company’s matching program?
  1. Determine your Debt/Income Ratio
  • Lenders use this to determine your ability to manage payments
  • Total monthly debt payment/monthly gross income
  • 43% is generally the maximum for a Qualified Mortgage as per Consumer Finance
  1. Review your Retirement Allocations
  • Does it make sense?
  • Is it balanced?
  • Are you earning a return? 
  1. Check your credit score – It is your Financial Reputation
  • Obtain your free annual credit report from each of the 3 major reporting agencies, check it for accuracy, and dispute anything that is not correct
  • Obtain your FICO score

Taking the time to manage our money provides benefits:

  • Feeling in control
  • Knowing our capacity to absorb financial shocks
  • Finding if we are on track to meet our financial goals or
  • Having peace of mind and the flexibility to make choices

The road to financial freedom is full of potholes. If you take the time to discover, find, and fix them, your trip will be less eventful and you will reach your destination faster & safer.

May you have a safe, prosperous, and fulfilling journey.

Thanks for the reading!

Deb

P.S. I welcome and encourage comments and questions. It is one way to see how I am doing. 

Deborah Ann Fox, CPA is working to make a difference in peoples lives by helping them build and protect their financial health. She offers free 30 minute, no obligation consultations and is available for appointments – including remote. More information is available at http://www.DeborahFoxCPA.com. Questions or comments can be sent to debfoxfinancial@gmail.com.

“Money on the Table”- 2015 Year-End Tax Saving Strategies

Leaving “Money on the Table” is an idiom, which means not getting as much money as you could.

You can do this in a lot of different ways such as salary negotiations, selling low when you bought high, or by not using the IRS tax rules and planning opportunities and then leave your hard earned money “on the table”.

The IRS, literally, spells “theirs”. The money is theirs if you just wait until the tax- filing season comes, complete & submit your 1040 tax form and then pay the amount owed or get a refund.

As a CPA – Tax Advisor, I love learning the rules and then sharing information to help other people reduce their tax bills. It is my way to help empower other people and hopefully, make a small difference in their quality of life. Nobody likes paying taxes; almost all of us like to save money.

Yes, we need to pay our share, but we don’t need to pay more than we need to. The IRS also does not want us to pay more than we should. The rules are in place to help us pay less. It is our responsibility and our choice to use them or not. The IRS is not going to tell you, you could have paid less, if you had just (xxx). There are a lot of possible ways to “fill in the blank”. Each tax story is unique.

As an advocate for “not leaving money on the table”, I offer you some practical, actionable, steps to take now to see if you can reduce your 2015 tax bill, now, before it is too late.

Step One: Estimate your 2015 Income & IRS Withholding

If you want to want to make sure your money is more in “your pocket” than theirs:
• Determine how much you have earned this year
• Determine what you have paid toward your 2015 tax bill
• Then increase each of these amounts to estimate the year-end amounts

Step Two: Compare this year to last year:

Now that you have a glimpse of your 2015 tax situation, compare those numbers to those on your 2014 tax return. A filed return can be used as a sort of “road map” to see if there are options to reduce your tax bill now or in the future.

For example, did you get a refund last year? If so, consider this:

Last year, Kiplinger’s had a great article titled, “Safeguard your Refund by shrinking it”. The article includes the following:
• More than 75% of Americans get an IRS tax refund each year which is the equivalent of giving the IRS an interest free loan
• Identity Theft is on the rise and thieves file fraudulent returns to collect refunds. Avoid this risk by limiting the amount of refund you receive
• Use on –line tax calculators to see if your estimated tax withholding is correct; the IRS and Kiplinger’s both provide these tools
• File a revised W-4 with your employer this year to change your tax withholdings; remember the goal is to break even

Step Three: Review 2015 & determine actionable steps

Shift “Income” to this year or to next year?

Consider if you can shift your income to decrease the amount of tax owed.

If you think your income will decrease next year and your tax rate would be lower, can you:
1. Defer a year-end bonus to January 2016?
2. Postpone a sale that will trigger a gain to next year?
3. Delay exercising stock options?

Alternatively, it may make sense to move income to this year:
1. Covert a traditional IRA into a Roth IRA and recognize the conversion income this year?
2. Take IRA distributions this year?

Shift Payments?
If you itemize, would you benefit if you changed the timing of some of your payments?
If you expect your income to decrease next year, then you might want to move some payments/deductions to the current year to offset your higher income this year. Can you:
• Prepay property taxes?
• Make your January mortgage payment this year?
• If you owe state income taxes, consider making up any shortfall rather than waiting until your return is due
• Consider the timing of medical expenses so you can benefit from the deduction?
• Sell some or all of your loss stocks?
• If you qualify for a health savings account, consider setting one up and making the maximum contribution allowable

Defer Deductions to 2016
If you expect tax rates to increase next year, or if you anticipate a substantial increase in taxable income, you may want to explore waiting to take deductions until 2016:
• Postpone year-end charitable contributions, property tax payments, and medical & dental expense payments, to the extent you might get a deduction for such payments
• Postpone the sale of any loss-generating property

Step Four: Can you do anything else?
For those that would like to take it a step further, consider if there is anything you can do to increase your “Above the Line Deductions”.

On a Federal Individual 1040 tax form, the basic formula is:
Income minus “Above the Line” deductions = Adjusted Gross Income.

These deductions include paying monies to:
• Establish an IRA for you or your spouse?
• If qualified, set up a Health Savings Account?
• If self-employed, would you benefit from having health insurance or a Qualified Pension Plan?

While this is not an exhaustive list, I hope it gives you enough information to initiate your plan, act this year, and save money on your 2015 next tax bill.

A dollar saved is a dollar you don’t need to earn. Keep marching towards financial freedom. Happy planning!

Deb Fox is working to make a difference in peoples lives, hearts, and wallets by helping others protect their financial health and is available for side-by-side, remote, or mobile appointments. More information is available at http://www.debfoxfinancial.com. Questions or comments can be sent to debfoxfinancial@gmail.com

What you don’t know can hurt you

RiskIgnorance may be bliss, but what you don’t know, can also hurt you.

You work hard for your money. You want to enjoy it, stretch it, and protect it.  Personal Risk Management is a way to protect your money. It is a systematic process of evaluating the chance of loss and then taking steps to combat the potential risk by practicing risk avoidance, using contractual indemnification, or by purchasing insurance.

One example of risk avoidance is if a sole-proprietor choses to incorporate and thus limits their personal liability exposure.

Contractual indemnification is a common clause in many contracts. Black’s Law Dictionary defines indemnity as a ““a duty to make good any loss, damage, or liability incurred by another.” Indemnity has a general meaning of holding one harmless; that is to say, that one party holds the other harmless for some loss or damage. Indemnification protects you against personal liability.

Insurance helps to stop an insured “loss” from being a financially life-changing event.

Most people probably find insurance boring and reading insurance contracts even more so. As a CPA, with the Associate in Risk Management (ARM) designation, I enjoy looking for the “devil in the details”. It is one way I provide value to others.

The goal of this blog is to plant some seeds of thought, initiate action, and provide you some “sleep insurance” because you took the time to evaluate, know, and feel comfortable with your financial position.  Factors to consider include:

Limits and Exposure:

  • Know what you have to protect:  What is your net worth; i.e. how much could you lose?
  • What type of losses are you covered for?
  • What percentage of your net-worth is protected by insurance and what amount is left “self-insured” in the event of a loss?

Property:

  • Do you know that if you do not buy the correct property insurance limit that you could be held financially responsible, for a portion of the loss? This is called the co-insurance requirement; read your policy
  • What does your insurance cover you for?
  • Do you have a property “named peril” or an “all-risk” policy? A Named Peril policy only provides coverage for the peril specifically named. An All Risk policy provides coverage for all losses not specifically excluded from coverage
  • If you do not have an All Risk policy, your fire policy might include “extended coverage”. Rev Shaw is an easy acronym to see what might be covered other than loss caused by a fire. R=Riot, E=explosion, V=Vehicle; S=smoke; H=hail; A=aircraft; W=Wind

Liability:

  • How do you determine the policy limit that you buy on your auto, homeowners, or Business Owners Policy? Do you buy the minimum limit or do you also have an Umbrella policy that responds in the event that a loss exceeds your primary limit?
  • In a Money magazine 2/5/14 article, Ed Charlebois of Travelers Insurance said “More than 80% of umbrella losses are auto-related,” If you remodel, does your general contractor make sure that the subcontractors are covered for worker’s compensation and general liability? Do you own a swimming pool, hot tub, or boat that increases your risk/exposure for a loss?
  • If you are a business owner, do your contracts require you to name others as an Additional Insured on your policy? Do you know that this means you are sharing your policy limit (s) with others? Is your defense coverage included in your policy limit?

Your insurance agent can help you review the type of coverage you buy. From a risk management perspective, insurance agents/brokers generally will not tell you how much insurance to buy; this increases their liability.  Likewise, I would not suggest limits either. I could, however, help you determine your exposed net worth and help you review how well you are covered from a property/casualty (liability) perspective.

Warren Buffet said, “Risk comes from not knowing what you are doing”.  Take the time to know and sleep well tonight.

Deb Fox is working to “make a difference in peoples lives, hearts, and wallets”. Although she earned her CPA designation in 1997, she is not currently practicing as a CPA. She does use her knowledge to help others protect their financial health and is available for side –by- side, remote, or mobile appointments.

Website: www.debfoxfinancial.com

E-mail: debfoxfinancial@gmail.com

Twitter: @debfoxfinancial