Debt & Moderation

I typically begin a posting with a quote. Today’s posting on the need for, and the responsible use of debt, provided several challenges in the quote department. One challenge is current popular opinion which states that all debt is Biblically and morally wrong. The second challenge, and perhaps very revealing, is that quotes on the responsible use of debt, outside of economic circles, is very limited.

In our practice we use debt with our clients in a variety of ways: asset protection, short term cash flow needs, and as an investment. The ‘true north’ in the application of debt in financial planning is moderation. Moderation as a quotable phrase provided a more substantial harvest. [Read more…]

Where to begin – Personal Financial Ratios Part 2

In my last posting I began a dialogue about personal financial ratios. I used “Habit 2, ‘Begin with the End in Mind’” from Stephen Covey’s book, The Seven Habits of Highly Successful People. I went on to say that like Habit 2, the “personal financial ratios are a goal to strive toward, a goal to be obtained.” The first step in working with personal financial ratios is to create a “spending plan.”

Unlike the term budget, a ‘spending plan’ emphasizes choice in spending decisions. It is a necessary building block for the future. Once the spending plan is completed it should be reviewed in light of the personal financial ratios. Objectively, if we give away 10 percent of gross income, save 10 percent of gross income, and pay taxes of 30 percent of gross income, then we should be creating our spending plans with a goal of living off of 50 percent of our gross income. [Read more…]

Unbridled Optimism!

I must confess I am an unbridled optimist. I have always been the glass runneth over type, as opposed to a half full or half empty—kind of person. At social events, I will not shy away from the “doom and gloomers.” I usually confront them with a positive comment. The conversation goes something like this: “I can’t wait till so and so is out of office because they are ruining the country.”

My response is, “the only way to ruin a country is for its citizens to abandon it.” William James said, “Pessimism leads to weakness, optimism to power.” Dietrich Bonhoeffer felt that “The essence of optimism is that it takes no account of the present, but it is a source of inspiration, of vitality and hope where others have resigned; it enables a man to hold his head high, to claim the future for himself and not to abandon it to his enemy.”

Here is more good news to confront the “naysayers.” The IRS has just released the “Fall 2013 Statistics of Income Bulletin.” And the news is good—go figure. For tax year 2011, taxpayers filed 145.4 million individual income tax returns. This is an increase of 1.7 percent from tax year 2010. Even better, the adjusted gross income reported on these returns is up 3.5 percent from the previous year. And the icing on the cake is taxable income for 2011 rose 4.4 percent. And knowing the taxpayers predilection for understating income and overstating expenses, I would say the news is even better.

So, has the U.S. government rescued it citizens? I would say, “No.” It’s the citizens of the United States that not only rescued themselves but saved the planet during 2007 – 2009. More particularly, it was the U.S. small business owner, who regardless of economic circumstance—famine, war, or recession—is able to make a living for themselves and their families.

If you are looking for optimism to begin the New Year, then look no further than your neighbor and all those who embrace the “can do” attitude of America. And the next time bad news is heralded at an event, share some good news. Automobile sales are up. Housing sales are up. We have a surplus of oil and we are about to export natural gas. Just being an American is cause for optimism.

Avoiding Coal in Your Stocking!

Home prices are up. In some locations there is a shortage of inventory. According to the National Association of Realtors the number of homes available for sale has reached a low not seen since 2003. Well, it looks as if the world did not come to an end in 2009, the housing/mortgage crisis was not prolonged, and things are looking very good for 2014.

With all of the good news consumers are feeling more confident about their employment and work security. As a result, some individuals may be tempted to tap into their new found home equity for purchases; perhaps a new automobile, a long delayed vacation, or debt consolidation. [Read more…]

Payable Unto Death: Halloween Etymology

All Hallows Eve is an unofficial kickoff to the Fall holiday season, and one of the more ghoulish refrains I have heard this season is from financial advisers. Their endless refrain is that mortgages are bad, and if you have a mortgage, you should pay it off. Their endless cacophony is like the wail of a Banshee, or the howling of a wolf:  “All debt is bad. It is ungodly to have debt.” It sounds as if they are trying to scare children or to manipulate their clients through fear. Obviously, they have never considered the needs of a business owner.

I would like to begin this posting with a little etymology. Mortgage, like many of the words we use in finance, is from the French language. And yes, its root meaning will bring a chill to your bones: mortgage means payable unto death.  The presumption is that the borrower will be servicing the debt until they die.

[Read more…]