Avoid (Unnecessary) Spending - A Quick Checklist

It's all the result of people spending money they don't have on things they don't need to impress people they don't like. - Denise in Business Week Reader Feedback on December 10, 2007 on "The Consumer Crunch" edition

When I read this comment in Business Week, I thought it was very insightful and would be a good test of whether I should buy something or not. For future reference, I created a three question checklist to use. If the answer to either of the first two questions is "no," then I won't buy it. If I get to the third question and answer "yes," I will buy, but be more cost conscious.

1. Do I have the money?
   YES ---> Go to question 2.
   NO ---> Stop and don't buy it. This one is simple. If I don't have the cash, then I shouldn't be thinking about buying it. My exceptions are a home or a first car.



2. Do I need it?
   YES --->Go to question 3.
   NO ---> Stop and don't buy it. If I don't need it or plan to use it frequently, I won't buy it.



3. Is a reason to "impress"?
   YES ----> Stop and consider something more "cost effective."
   NO ---> OK to buy.

While each people may make different choices, here are some example "decisions" for me:

	Checklist
Item Under Consideration	Question#1	Question#2	Question#3	Decision
Nintendo Wii	Yes	No	-	Not Buy
Cell Phone	Yes	No	-	Not Buy
Luxury Car	Yes	Yes in 2013	Maybe:-)	Look for economy model that meets need
HDTV	Yes	Yes in 2009	No	Buy in 2009

For reference, in 2013 our cars will 10 years old. After February 17, 2009, all TV broadcasts will be in digital HD format and we only own TVs with an analog tuner.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Links to Carnivals from January 2 - 8, 2008

Here are links to select Carnivals from January 2 - 8, 2008:

Carnival of Everything Finance

Carnival of Financial Goals #2

Carnival of Personal Finance 134: Building on the Basics

Festival of Stocks

Festival of Frugality #107: The Little Things Edition

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

1/7/08 Stock Purchase Update - Pulled Down By The Market

In my 12/31/07 stock purchase update, I wrote about how the 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) was performing. In that article, the portfolio had achieved a new high with a gain of $4,098 for a 28.8% return. As of 1/4/04, the portfolio had pulled back to a gain of $3,823 for a 26.9% return, due to the market decline in the first three trading days of 2008. The new purchases of PCU, CNH and BHP are only up slightly at $260 for a 2.4% return. Both PCU and BHP continue to have small losses. Here's the current status of the stocks I own in the portfolio:

	My Wealth Builder 10/15/07 Buy List
Stock [purchase date]	Shares	Purchase Price	Current Price 1/4/08
Potash (POT) [6/7/07]	50	$71.59	$142.65
Southern Copper (PCU) [11/13/07]	40	$108.24	$104.00
CNH Global NV (CNH) [11/13/07]	50	$55.22	$66.07
BHP Billiton (BHP) [11/27/07]	50	$71.54	$69.29

The market activity continues to be concerning, with either narrow breadth or a high number of new lows. I believe that the probability of a recession in 2008 is relatively high. The multitude of negative factors will eventually outweigh any actions by the government. Originally, the Fed interest rate cuts and other actions lead me to expect that the bull market will last through summer, 2008. However, the economic data this week or month may cause the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008. At this time, I do not plan to add any more to the amounts that I have already invested in the above table.

For more on Strategies and Plans , check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

My Tax Optimization Strategy For 2008

For 2008, our goal is to manage our taxable income to qualify for several of tax benefits, to minimize our tax liability. Since I retired in my forties in 2007, we will be able to "control" our taxable income since we have minimal regular wage (W-2) income and will be living off our savings. The tax benefits for which we will likely qualify are shown below.

Tax Benefit #1. Convert regular IRAs to Roth IRAs. Roth IRAs have two benefits over regular IRAs: 1) Roth IRA distributions are tax free and 2) Roth IRAs have no required minimum distribution after age 70 1/2. Both of these benefits can result in significant tax savings in the future.

The income limit to do a Roth conversion. for 2008 and 2009 is $100,000, including the taxable part of the IRA conversion. In 2010, there will be no income limit.

Tax Benefit #2. 0% on long term capital gains for stock sales. From 2008 to 2010, the long term capital gains rate is 0% for taxpayers in the 10% and 15% tax brackets. For 2008, the top of the 15% tax bracket is $32,550 for single and $65,100 for married filing joint (MFJ). Remember, taxable income is the income after adjustments, exemptions and deductions.

Tax Benefit #3. Child and education related tax credits. The child tax credit is $1000 per child and begins to phase out at $100,000 AGI for MFJ and $75,000 for single. Lifetime learning tax credits are up to $2000 and begin to phase out at $90,000 AGI for MFJ and $45,000 AGI for single.

Tax Benefit #4. I have not found 2008 adoption tax credit numbers. However, the adoption tax credit in 2007 was $11,390 and began to phase out at $170,820.

At this point, I expect we will be able to qualify for the first three tax benefits. The fourth tax benefit will depend on whether we get an adoption referral in 2008. Since we are doing an international adoption, we cannot claim the tax credits until the adoption is completed.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

I Don't Complain, Instead I Don't Return

Although your customers won’t love you if you give bad service, your competitors will. ~ Kate Zabriskie

It used to be if I received bad service, I would take the time to fill out a complaint card and let the establishment know. However, I no longer do that. Now if the business gives me bad service, I just stop going. To note, I can forgive a mistake or two. It's bad service that I no longer tolerate.

Here's a recent example of what I consider bad service at one of the casual restaurants we frequent. The meal service was acceptable, although we did the pizza seem to be saucier than usual. When we received our bill, there were several mistakes. We were overcharged by one item (extra sauce) on the pizza, one beer wasn't charged and the coupon was not deducted from the price. I explained all the mistakes to our server who thanked us and worked with the manager to make the corrections. A few minutes later she handed us a corrected bill and explained that the pizza charge was not adjusted since the extra sauce had no charge. After looking at the bill again, I told the server I still thought I was charged for three toppings and asked how much each additional item cost.

She gave me a why-are-you-asking-me look and said, "I don't know."

I replied, "Could I see a menu?" and she handed me one.

I said, "Based on the menu, it looks like I was charged for three items instead of two."

Her reply, "Ok, I'll check with the manager again."

While the manager was sorting out the bill, I had to ask twice for a box to take home the remaining pizza. After several more minutes, she returned with the revised bill, explaining that the manager had been confused. Although the bill was now correct, I felt we had spent half of our time in the restaurant working on the check. Not my idea of an enjoyable evening.

Although I still like the restaurant chain, I won't be going to this specific restaurant, which is close to our house, in the near future. Even though it only happened to us once, I don't want to risk paying for another bad service experience.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial or business advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Maybe Endowment Professionals Should Manage Company Retirement Accounts

Over the past year, I have been reading articles about University endowment funds returns. Typically, the top universities have outstanding returns as reported in What Can We Learn from Yale Endowment's 28% Return? and Harvard Endowment Posts Strong Return. It seems that endowment fund managers have figured out how to regularly beat the overall stock market returns by using alternative investments - e.g. real estate, private equity and hedging.

I think the returns by endowment funds are great. I'd love to have the same returns in my accounts. In my limited experience, company retirement accounts have only a few options, with either no management or self managed by the individual. In my case, my only choice for most of my career was our company's stock. Fortunately for me, the company's stock outperformed the S&P index while I was working there. However, when a 401K part was added, I was given the choice of four mutual funds, which had OK but not stellar returns.

The endowment return articles have caused me to wonder why businesses haven't used the same approach to manage pension and retirement accounts - i.e. hire proven investment managers who are paid to beat the market. In addition, these managers could be made available to employees to manage personal funds. Having interviewed several money managers, I recognize how difficult it is to find an excellent and knowledgeable manager who delivers results. Having access to successful investment managers would be a great fringe benefit.

Note to self. If I should ever be successful in starting a major company:-), I think I will make professional management of retirement accounts and personal accounts one of the company's benefits.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Holiday Party Observations

"You can observe a lot by watching." - Yogi Berra

The holiday gatherings I attended had a wide range of professions, backgrounds and ages in the group. Attendees range from 3 to 70 years of age. Professions covered include farming, military, teaching, real estate, corporate employees, non-profit employees, self-employed, government employees, retirees, graduate students and homemakers. Besides catching up socially, conversation topics include politics, economics, business, and investing. Here are some of my observations from this year's conversations:

Financially, people were guardedly optimistic. Most of those in their twenties and thirties had good jobs, which they found challenging and were enjoying. Some were continuing their education with graduate degrees, and had positive outlooks for their future. Real estate was difficult, but offered some opportunities for good buys, e.g. below the previous purchase price. People in retirement didn't seem to have any major financial concerns.

However, most recognized that the future was a potentially rocky road and still fuzzy on the eventual outcome.

Politics was not a big topic. There was barely a mention of the Presidential campaigning. This was surprising given the range of political discussions in the past. I guess either everyone is tired of the campaigning already or no candidate has impressed enough people yet. Probably a little of both :-)

Children had a major presence. Every holiday party we attended included children, which seems to be the norm for us nowadays. A lot of attention was given to the children. The children were either a focus or they had their own separate activities. At one party, gift exchanges were done primarily for the children. At another, playing video games was a major activity.

While holiday parties attendees are not necessarily representative, I thought peoples economic and financial perspectives were relatively positive. I hope this attitude indicates that 2008 will be a better year :-)

For more on Crossing Generations, check back every Thursday for a new segment.

Photo Credit: morgueFile.com, Adriadna

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Doing What One Loves - The Difference Between Theory And Practice

In theory, there is no difference between theory and practice. In practice, there is. ~Yogi Berra

To me, there is a big difference between theory and practice. In theory, doing what one loves should lead to great compensation. However, in practice, doing what one loves may be disappointing financially. Why is there such a big difference between theory and practice? Here are my thoughts:

Theory often requires "ideal" conditions. Ideally, "doing what one loves" will work if people are willing to pay for what one loves to do. In practice, I have found people are not willing to pay enough for what I truly "love to do." Of course, there are always the success stories which support this theory. However, Do What You Love and Starve by Marty Nemko points out that for every success story, "there are thousands of wannabes still waiting tables" whose stories are rarely reported.

Doing well requires a exceptional level of skills. As much as I wanted to be a NFL football player, I wasn't going to make it. I wasn't fast enough, strong enough or big enough. My football career peaked in high school and ended at the collegiate level.

Results also require diligent hard work. For example, in theory I could be a good, even competitive golfer. I understand the mechanics and strategy of golf. I know how I am supposed to hold the club, swing and follow through. However, in practice, I am, at best, a mediocre golfer. Mainly, because I don't invest the time and effort to learn and practice to improve my game. Therefore, whenever I play a round of golf, I do the best I can and hope for a good score.

However, all was not lost. In practice, I still do what I love, but for personal enjoyment. For example, I transferred my quickness and speed in football to rugby and tennis, both of which I was able to play many years after college. In practice, I also used what I was good at and applied it to a challenging, good paying job, in which I had interest. This led to a very satisfying career from which I recently retired in my forties this year.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit: morgueFile.com, Mary R. Vogt

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Not Buying Things I Don't Need

2008 Financial Resolution #2: Stop Buying Great Deals by Chief Family Officer is an great financial resolution. It reminded me of the "feature" approach product manufacturers use to entice consumers to buy more frequently. The approach encourages consumers to move up to the new (and usually more expensive) product model, while the current one they own is still functioning.

This marketing strategy appears to be used for many products, e.g. automobiles, sporting goods, electronics and appliances. As the Chief Family Officer relates, it can be easy to convince oneself that the new model with more features is desirable. However, I wouldn't have enough money to buy yearly upgrades for everything I own :-) Often, a few additional moments of consideration reminds me that the model already owned is good enough, still working and meets the needs. Similarly, the Chief Family Officer also arrived at this conclusion in her post.

Marketers are excellent at getting consumers to want new things. For me, a good defense against "more feature" or "great deal" marketing is to buy only what I need. I have found that while my wants are many, my needs are much fewer. Remembering my needs helps me routinely avoid buying great deals that are regularly offered :-)

For more on Ideas You Can , check back every Tuesday for a new segment.

This is not financial advice. Please consult a professional advisor.



Copyright © 2008 Achievement Catalyst, LLC

Links to Carnivals from December 29, 2007 to January 1, 2008

Here are select links Carnivals from December 29, 2007 to January 1, 2008 to kickoff the New Year:

Running An Organized Home

Tax Carnival #27: Waiting for the Tax Ball to Drop

Carnival of Personal Finance #133 - Last 2007 Edition

Happy New Year Carnival of Family Life

Carnival of Twenty Something Finances

Festival of Stocks#69

If one is looking for ways to keep those family and financial resolutions, these Carnivals may provides some good ideas.

This is not financial, tax or family advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC