No, no, no, and no. . . Investing Like You are Poor

In some financial article I have somewhere for the blog, a writer made a very insightful comment which I am paraphrasing about too many people in our communities are investing like they have just stepped off the boat, even though their relative financial comfort should call for a more conservative approach. Yet they are investing recklessly, make it or break it style. It was one thing for our grandparents to put what little they had into a single basket. The worst that could happen: they'd be left with nothing in their pocket. But where they are on the financial spectrum, that type of investing is simply inappropriate. They are simply taking on too much risk, and in the process they often end up loosing more financial footing trying to 'get rich' when normative investing would be more suited.

A team that is mid-game and keeping the score close (i.e., they have a reasonably comfortable life an some good years ahead of them) simply should not be throwing their football into a disorganized, crowded end zone. But, it is happening far too often and I've seen more than enough shares at our favorite frum women's forum to know that this issue is prevalent and relevant.

In this imamother thread a wife brings her concern to the chat room (a bigger issue is that the husband isn't listening to the wife and they aren't a team as he plans to enter into a passive income activity that isn't really passive and is sure to involve her even though he probably doesn't even realize that between sips of kool-aid). She is rightfully concerned about her husband's plan for an inheritance. He heard from a relative about a lady who buys homes in other states, rents them out providing income, and then sells them a few years later.

Ah, investing in a cash-guzzling non-liquid asset with inheritance money, sight unseen, in a state you don't live in because you heard a tip from a relative. Screams bad idea!

I don't want to talk too much about real estate investing and get side-tracked, but I would recommend a first time investor create a situation of maximum flexibility: flexibility in the family budget to cover shortfall/losses, flexibility on the time frame, flexibility regarding property management or self-management.

When people who lack funds run into money (be it an inheritance, a platinum album, the lottery), they often act out of emotion. Below are some questions that I recommend those who run into money to consider. Readers are free to add their own questions.

1. Is our own personal financial situation under control?

2. Have we invested in our own income earning potential?

3. Are we investing in the future income earning potential of our children?

4. What are our predictable future financial needs and what level of liquidity do we need?

5. What level of risk is appropriate for our family?

6. What level of involvement in an investment works for our family?

7. What type of industries/investments interest us?

Especially for non-passive investments (and I'm not talking about passive from a tax perspective):

8. What will it cost to maintain this investment? What are the risks?

9. Do we currently have the relevant skills, experience, and support needed to make this work?

10. Are we on the same page regarding our investment(s) and can our family manage this considering all other needs?

While no one really wants their money sitting around losing money to inflation, there is absolutely nothing wrong with letting your money sit while you explore your get on the same page.

Ask Orthonomics: Is This Expense Justified

I received an interesting inquiry which I will present (abbreviated below)

Dear Orthonomics,

We are a family of six living in Israel with a monthly, post tax and post pension/savings plan income of approximately 16,000 NIS, (as per my exchange calculator approx $4300) give or take. Monthly expenses range between 17,500 and 19500 NIS I am in school and he works in the HiTech field. Prior to returning to school, monthly expenses were between 500 and 1000 NIS below our income . Our mortgage is our only debt and we pay approximately 3500 NIS per month.

Our children are in private school and the youngest is in private daycare. Returning to school has entailed additional childcare expenses. We don't have some of the more common luxuries, nor do we return to chutz l'aretz. Our grocery bill is relatively high, varying between 5000 and 6500 NIS/month.

Regarding savings, we have several hundred thousand NIS in savings and other investments. Half are in low risk investments. We draw several thousand NIS from liquid investments to cover the shortfall while I am in school. After graduation, we hope to add another 6000 NIS post tax to household income.

Now that I'm entering a more professional environment, I would like to put together a better wardrobe. I have one custom $1000 sheitel that is 10 years old, snoods, and scarves (my normal covering). I'm interested in purchasing a new sheitel and I have my eye on a 5300 NIS sheitel. I expect to enjoy it for 10 years.

My husband has concerns as to whether one wig will last so long and thinks in light of the current financial situation unnecessary expenses should be avoided. Our clothing budget for the past 12 months is approximately 7500 NIS, mostly children's clothing and good special sized shoes.

My question: is a 5300 NIS wig purchased for "mental health" justified.

Dear Readers,

Thank you for a writing. I can understand your dilemna as you begin to enter the working world. The situation in short is that you are currently drawing around $2500 a year on $26,000 of savings while you complete school. Your situation is not long term, nor untenable, especially as you continue to contribute to mandatory pensions.

It seems to me that buying a $1400 sheitel won't make or break the bank and there is something to be said for looking and feeling great while you are on display during clinical work. However, I tend to agree with the sentiment that it is best to hold off on unnecessary purchases, especially because you don't know what the future will bring post-graduation. The unknown is scary.

My suggestion, when faced with a luxury purchase that you really, really want is to seek alternatives. Perhaps there is someone selling a hardly used sheitel (happens all the time here) and you can score something wonderful for $500 or less. Perhaps there is a sheitel gemach and you can trade in your old sheitel for one in nice condition.

Since this is an area of contention, I think the default is to hold off the purchase and seek an alternative that works for both of you. I'm a big believer in coming to a solution that both husband and wife are comfortable with. I'd work to seek an alternative that fulfills the mental need in a way that is much less expensive (I do understand the need to sometimes have a wardrobe 'face lift'. And, you can even work to cut back an expense here or there to help cover the cost of the new-to-you sheitel, even though you are already frugal.

Sincerely,

Orthonomics

Blaming Bad Finances on the Girls

I found this comment on imamother which underscores my feeling that the attack against seminary for girls is not actually financial in nature, but is really an attack against Torah education for women.

That said, my DH is acquainted with someone in our community who offers free credit counseling and debt consolidation through a local gemach. He spends up to 20 hours per week helping families figure a way out of credit card debt. Now, I imagined all this credit card debt was a result of everyone running amok at the mall, but DH's friend related something surprising (to me, anyway!). He said that the majority of unmanageable consumer debt owed by families with whom he worked was based on two areas of expenditure: (1) Seminary in Israel for post-high school girls; and (2) Chassunah expenses.

I don't appreciate intellectual dishonesty and this is a prime example.

Never mind that the Orthodox parents have been financing 12 + year of private schooling for both boys and girls. Never mind that a good percentage of young people, especially men (!), don't enter the workplace until their mid-20s with a kid or two behind them. Never mind that long term savings, esp. retirement, is discouraged in favor of and it's-not-a-luxury-any-longer camp. Never mind that many enjoy plenty of luxuries on a regular basis from matching boutique children's clothing to new jewelry in honor of every occasion under the sun to designer strollers. Never mind that a cleaning lady is a regular feature in a a good half of frum households. Never mind over inflated household expenses from store bought prepared food products to flowers. Never mind school pizza lunches.

Nope, the reason for the credit card debt isn't years upon years of over-spending. The reason for the unmanageable debt is those pesky girls going to seminary!

When it is time to get serious about a communal debt problem that menfolk will be addressed and blamed together with the womenfolk.

Creating Efficiency in the Car

I don't know about you, but I spend a tremendous amount of time in the car. I don't use a cell phone in the car as others do in the name of getting things done and efficiency. When I'm out, I want to be phone-free and computer-free. I much prefer to listen to the radio, talk with my kids and their friends who are along for the ride, and simply concentrate on driving.

This year I've created a "Car Office" and a month into the new school year I am happy to say that it is working well.

What should everyone have in their car office:

A File Cabinet: When Office Depot was running a 100% Worklkife Rewards promotion on plastic file boxes with a nice closed caddy on top, I picked one up to complete my "car office." I immediately hung hanging folders and put in files for things I need to keep organized in the car. I have folders for client errands. I also have folders for each type of coupon circular. I no longer cut coupons I might use because it was no longer efficient for me. I now cut just the coupons I plan to use right there in my car and when the coupons in the circular expire, into the trash bag they go (yes, I should probably have a trash bag and a bag for recycling. There is always room to improve). I have folders for Groupons, Smart Source, Red Plum, Random Stuff, and P&G.

Plastic Bags: These are great for throwing away dirty trash when you are out. They hang nicely on the hooks for garbage bags. Next step: encouraging the kids to use them better. One of my 5 minute tasks I like to go is purge the car every other week of any trash including work they brought home but didn't really value enough to get inside the house. I'm not the most sentimental type. A few art projects can be retained and notebooks that are valuable. The rest can't take space up. . . especially not car space!

Office Supplies: In the caddy at the top of my file cabinet are some office supplies. I keep additional supplies in one compartment in the car. I have a pair of scissors, especially important for last second coupon cutting. I have a few pens. I keep a stack of business cards around. I'd be remiss without a roll of tape and some sticky notes. Keeping office supplies nearby is important for me to function optimally. I used to have an open box which was easy to access, but the kids would "borrow" and I could never find what I needed when I needed it. Plus, it created more cleaning work.

A Binder: My binder fits in the file cabinet nicely. I like to have some paper (contained in the binder) for jotting down thoughts and ideas that come to me and making lists. The binder is great to store things that I use so often that I don't want to play with file folders. Things like a school calendar, a phone list, etc are all in my binder.

Rubbermaid Box: I'm the type of mom that cannot get out the door with a the things I need. A rubbermaid box is my friend. In it I keep things I won't get out the door with but that I should have. The rubbermaid box is a great place to keep some warm blankets for the winter when the kids are freezing and the heat hasn't kicked in yet. It is a great place to keep a change of clothing for kids that might need one. It is a great place to keep a soccer ball, some coloring books, and some small games for when we are stuck on an errand. I probably should add a first aid kit too.

GPS: Goodbye piles of maps and yellow pages. This is an amazing invention! Try 1saleaday.com to nab an inexpensive one. You don't need to pay retail.

Other Nice Things to Have: A few CDs, a tehillim/bencher/siddur, a little extra change, a few toiletries, some plastic silverware and a can opener.

Please share your "car office" tips. I know I'm not the only parent trying to make my carpools the most efficient possible.

Not Everything Should Go on Record

Hat Tip: VIN

Not everything should be aired out in public. . . especially one's sheitel. Or, at least that is how I felt after reading the NY Post article on pre-Rosh Hashana sheitel styling with upscale Manhattan stylist that runs into the 4 figures, that on top of the 4 figure wig.

While VIN commenters chat away regarding the halachic permission of wigs, esp. larger than life wigs, the prudence of spending this type of money, and the consumption issues, I'm going to steer clear of that and address a different aspect of the article. While I am of the opinion that you can't hide dirty laundry and it is better to admit that there are issues, rather than putting up an often hollow defense, I'd prefer the dirty laundy vis a vis what a minority are spending on their hair (and presumably the rest of the wardrobe . . certainly these wigs aren't topping off clothing from the [insert your favorite discount department store] clearance rack?) be kept hush-hush for the sake of the rest of us.

Being an Orthodox Jewess who regularly applies/interviews for accounts and positions which entail great trust and great potential for abuse, this article is cringe-worthy! Perhaps I'm just paranoid because I had professors that focused on fraud risk factors! But, I've also seen up close and personal what happens when an employee with an all too expensive life to support vis a vis their station losses their bearings. By biting when a reporter wants to write an article on pricey sheitel care, the costly lifestyle that is a rarity becomes the normal in the eye of the beholder (I still haven't forgotten about the other sheitel case of recent memory). I don't blame any newspaper for wanting to do a human interest story like this, but there will be no balance where the frugal, corner cutting, second hand sheitel wearer is subsequently featured.

Therefore, the interviewer can now think: Orthodox Jew = terribly expensive lifestyle = risk to employer. This on top of whatever other issues the employer may worry about (I had one interview that crossed into awkward territory where I had to explain that the previous employee who left him burned wasn't representative of Orthodox Jews vis a vis the laws of yichud).

I think that the majority of younger sheitel wearers do want their wig to go undetected on the job. The best solution to that, whether you are spending $500 or $5000 is to zip the lips.

Sheital Leasing: A Good Deal or Not?

Hat Tip: VIN News

I'd like to hear from my readers who are regular, higher end, sheital wearers (and their husbands), as opposed to more casual wearers, what they think of the economics of sheital leasing. Is $75 a month (service included) a good deal, or a fleece?

The Ynet article quotes a marketing manager to who compares sheital leasing to car leases. I think my readers are well aware of my opinion that leasing a car is a very, very expensive way to get from point A to point B and is far from a thrifty way to operate a vehicle. Hence, a gut reaction that this too is a fleece. However, while I'm sure I will never be renting a sheital, it might not be a rotten deal at all.

In my, not-so-educated opinion, higher end sheital wearing doesn't compare well to operating a vehicle at all as the alternatives to are far more limited (no, I'm not addressing hats vs. sheitals) and the usable life of the product is much shorter. The bar mitzvah age vehicle sitting outside my house, with as many issues as your average teenager, still serves its main purpose in it's own awkward way. But, I can tell you this, I wouldn't wear it on my head if I woke up tomorrow to find the car had become a sheital. Ventilation is a must, and dents throughout would render the thing unwearable.

A car that has been driven into the ground still has a value, if only at the junk yard for scrap metal. A car that is quite functional can be sold to a wide array of potential, flexible buyers for some real cash. A sheital that has been driven into the group, so to speak, is completely and utterly worthless. A sheital that is perfectly functional has very few potential buyers, and even fewer with the needed flexibility. I've seen people try to sell their twice worn customs for 80% of what they paid. I don't think there are too many takers.

Where sheital wearing does compare better to vehicles is in the realm of maintenance. I believe higher-end sheital wearers do pay for monthly wash and sets, which can run between $20 and $30 a month, making the $75 a month price closer to $60 a month. And, well, with the option to replace the wig once a year. . . . perhaps there is a value?

So regular sheital wearers (i.e. those who wear nearly daily), is sheital leasing at $75 a month a good deal or not when you average out the cost of your wig(s) and their maintenance over their useful life less any resale value?

Bad Financial Advice: Just Default

I believe I once started a feature on "Bad Financial Advice." I don't know if this is a revival, but a thread on imamother about getting out of credit card debt bring me back to the theme. A poster advises someone seeking advice on her credit card debt to default on the payments. She claims it isn't so bad and, in this economic environment, you can even get credit again. Yippee. In this case, the mother looking for advise has $4000 of credit card debt, perfectly surmountable.

Ruining your credit isn't just a matter of getting credit and the dollars and cents of interest rates. Bad credit hurt those seeking employment opportunities. It can cost you a security clearance. It can even cost you your current job. (link)

Bottom line: employers use credit history as an indicator regarding responsibility, character, and trust. Bad credit is a risk factor, especially if you are dealing with money. Best to deal with the $4000 than seek an "easy" way out. That easy way out may cost you much more in the unforeseen future.

School Supply Buying Season Has Arrived

I feel as though summer has just started, but July has rolled around and if you are a fellow frugalist(a), it is time to start watching the Staples and Office Depot advertisements for Back to School Deals. If you prefer not to watch the ads, make sure you are subscribed blogs such as Kosher on a Budget or Cheapskate for school supply alerts and links to coupons. A quick trip twice a month or so through the a big box Office Supply Store starting in July is an integral part of our summer. The kids pick up their inexpensive required supplies. I pick up inexpensive supplies for my own home office. And, I often restock the gift box with gifts and useful, nearly free, party favors.

As a general rule, I dislike shopping. And, stronger than my dislike of shopping is my dislike of shopping with an impending deadline. So, when I do drag everyone out shopping, I like to cover as much ground as possible. This week, I'm restocking certain items like salsa. I found out that our Dollar Tree has $1 jars of salsa, so when I was buying a case, I also had the kids pick out the paper goods for their birthday parties. They all happily pinned down a theme, and I'm happy that I don't have to go back to this store for a good long time to come.

This week, getting to Staples for a quick run through for 1 cent glues and 1 cent pencil cap erasers is a must. My $5 minimum purchase will quickly be met with the purchase of two reams of paper, which will be 25 cents each after I submit for rebate.

If you are a regular office supply store customer (as I am), and will be able to use the rewards because you have to buy paper and ink throughout the year, the big deal to watch for at Staples is their free after rewards backpack deal. That deal usually pops up mid-summer. Each year I try to pick up a backpack for the future. Last year, my oldest picked out a really fantastic, high quality backpack. It still looks brand new and will continue to serve us going into the 2011-2012 school year. Nonetheless, I don't mind having surplus backpack supply because 1) things break when nothing is on sale and 2) I like to have different backpacks prepacked for outings, workouts, diapering, etc.

I plan to get over to Office Depot too. Their rewards program is not nearly as friendly as Staples Rewards Program. But the store is nearby another destination and they are offering 100% rewards on things that do make nice gifts, as well as ridiculously expensive pens that someone I know will much appreciate.

And on a different note: When I've been out shopping during the school supply rush season, I always note that parents are very frustrated by the growing supply list (thankfully our school's supply list is fairly basic and I was please to see most of the supplies were used up). Supply lists should be as general as possible. It is best for parents and students to be able to "shop at home" by picking out suitable supplies from the supply cabinet at home.

And on a final note: There are programs for donating school supplies. If anyone has ever organized a donation program for yeshiva schools, I'd appreciate a guest post on the subject.

Recommended Reading:

My summary of the Staples Rewards Program(s) from a former post. And a few notes:

When heading to Staples, don't forget to put your empty ink cartridges in a bag to recycle for Staples Rewards dollars.

If you are in the market for a printer, watch for the printer recycling program. This is a nice way to knock $50 off the price of a new printer when you recycling an old printer regularly priced at or above $199 (look for a sale on a printer you like). Something to watch for if you aren't too particular, a floor model that has been slashed in price combined with $50 off for recycling your printer. The last time Staples had this deal, there were floor models marked down significantly that would have been almost free with a recycled printer.

If you are in the market for a phone system, consider recycling your old phones. There is a $30 price reduction when you do so.

My summary of the Office Depot WorkLife Rewards Program.

Things to Find Out Before Buying a Home

Baruch Hashem, home ownership has worked in our favor, but the more times I do it and the more times I field questions, the more I realize that in a certain sense, I've went in blind and thankfully everything has worked out well.

I've written a lot about hidden costs on this blog and I thought I'd address five areas of hidden costs on a home and what questions to ask:

1. Utilities? It is a good practice to get an accounting of utilities used in the past year. But utility bills aren't the entire story. Do the current owners blast the heat or bundle up? Do the current owners shvitz in the summer, or is the home nice and cool? Are people home using utilities during the year or is everyone out of the house? Knowing how many residents is helpful also. If an elderly couple is living in the home, e.g., the water bill estimate will need to be increased if you are moving 2 adults and 4 very active children into the home.

To get a good handle on what utilities should run, speak to other people in the neighborhood to compare costs and try to come to a good estimate regarding the cost of utilities.

2. Property Tax? Knowing what the current owners are paying in property tax is not enough. It is a good practice to get copies of 3 years of bills to see the assessment and credits. Many counties offer credits which might be applicable to the current owner but won't necessarily be applicable to you. If there are credits for energy saving improvements, find out if that credit is applicable. Do the current owners qualify for a property tax credit based on income for which you would be ineligible? Even if you are currently eligible, what type of jump will you experience should your income increase?

3. Insurance? Insurance costs can vary widely. Rather that inquiring about the current owners current insurance policy, which might have a different deductible or different coverage amounts than you would like, call your insurance broker directly and get a solid estimate regarding insurance. It is very likely the current owner qualifies for a lower price based on military service, for example. To date, I have been unable to match the insurance price of the previous owners of this home, although we've been able to shave off cost by working with a great broker.

4. Maintenance and Upkeep Bills? If I'd only asked for maintenance bills on the first home, I might have either opted for a different home or asked for a sizable discount. A home inspection can detect a lot, but if an owner is a bit, uh, desperate, you might find yourself in for more than you bargained for. Are there regular repairs to any systems, like plumbing? Will you need to bring out a pest control service regularly for bees or other vermin?

If you are buying a home with a bonus, like a pool or fancy landscaping or even a deck/gazebo or a fireplace, find out what that costs are to maintain the extras (or alternatively, hauled away). Don't forget to find out what it costs to have the lawn mowed, the gutters cleaned, or the leaves raked if you don't plan to take care of it yourself. Even if you do plan on taking care of it yourself, it still might be good to work the extra into your budget. Neighbors don't like seeing your lawn turn into the jungle because you've been traveling for work.

This list just touches the surface. Feel free to share your surprises.

Don't Hate!

A comment left on a different thread

Wow. What a judgmental bunch. I suspect that everyone on this board commenting negatively has a very comfortable income and assets. We don't know what this family's situation is . . . . . .

A number of years ago, I had a couple came to my home where they outlined their situation of personal financial woe and the went on to cast an "ayin hara" on our situation, which they summed up by looking around (at what they didn't have, we live in a pretty run of the mill home, although we love it and it is our mansion): my husband must have a very high income and our parents must have set us up quite nicely.

Was our income higher than theirs? Yes (and their income could have been higher with a different attitude and approach). But even when we had their not-so-shabby income, we were managing to save what they were managing to accumulate in amassing debt. Have we received more "help" from our parents? I have no idea and frankly it doesn't really matter. "Help" will only put you ahead if your behave with your money: earning with integrity, spending with frugality, and saving with determination. If money were to land in our lap tomorrow, our lives would remain the same. They've already spend the money that could land in their lap in their imagination.

Over the years I've met many people who believe that those doing well are doing well because of income. Over the years I've met many people who believe the reason some couples are ahead is because their parents are well-off and are helping. Over the years I've worked with many people who are just downright jealous. And, worse yet, their jealousy is completely misplaced because they do have a reasonable financial situation and with some creativity and discipline, they too could have a piece of that pie.

There are janitors that are quite comfortable and celebrities who are broke. One such celebrity-athlete who went broke was Mike Tyson:

Tyson had earned over $300 million during his career as a boxer but jewelry, mansions, cars, limousines, cellphones, parties, clothing, motorcycles and Siberian tigers eventually caught up to him. In 2003, when no more green came out of the debit machine, he had to file for bankruptcy, thanks to his colourful variety of debts including $13.4 million to the IRS and a $9 million divorce settlement to his ex-wife, Monica Turner. From 1995 to 1997, he spent $9 million in legal fees, $230,000 on pagers and cellphones, and $410,000 on a birthday party. In June 2002, he owed $8,100 to care for his tigers and $65,000 for limos.

Sadly, a lot of Mike Tyson's financial behavior--less the Siberian tigers as pet ownership is one area where you don't hear money being sucked out of the frum oilam's pockets--, is prevalent (albeit on a smaller scale, although as a ratio of income earned, perhaps it is on a greater scale) in our own communities.

Too much house for your station, too much car for your station, too much party for your station, too much tech for your station, too much clothing for your station. . . . and the formula is the same: broke. Income and assets be darned. They aren't the only part of the equation. In my experience, they are the less important part of the equation.

I do take the criticism I receive from readers very seriously and I want to make it clear that when I use real life examples of financial behavior gone wrong (such as continual borrow, the post that initiated this particular anon comment) it is **not** to make fun, but to give an examples of financial behavior that are ultimately destructive. I also have numerous posts on money saving tips too, all of which contain ideas that can be adopted by those who would like to achieve more prosperity and comfort.

I'd say that the commentor is just as judgmental as he (or she?) accuses the readership of being. I can only speak for my own household, but the comfort that we have achieved thus far isn't due to a silver spoon permanently lodged in our throats. At every juncture we have made deliberate decisions to live below our means, while the couple that expressed their jealousy of our situation, has and continues to make decisions that contribute to their financial woe. With a different relationship to finances, they too would be more comfortable.

Don't hate! Keep jealousy in check. Take notes when that jealousy emerges. **Learn new skills.** And maybe there will be a more prosperous financial future ahead.

Worth While Read: 5 Biggest Retirement Myths

I've wanted to share some thoughts on the cost of aging for a while now and this Smart Money Magazine article is a good place to start as it mirrors some of my own thoughts on retirement/aging.

In Smart Money's 5 Biggest Retirement Myth articles, the author names these myths and I have followed each category with some notes of my own.

1. $1 Million Will be Enough

The article mentions that future retirees don't correctly estimate what they will need in retirement which is likely directly related to the following myth #2, that people spend less when they are older. When coupled with falling investment income and market fluctuation, that seemingly huge amount of money doesn't seem so big anymore. Furthermore, inflation on the basics makes it difficult to keep up. A paid off home still requires lights, gas, and water. Eating costs can easily double, especially if a special diet must be adhered to.

2. You'll Spend Less When You Are Older

If there is any myth that needs to go, this one is it. The article mentions exotic travel versus funding a grandchild's College Savings plan, both optional expenses, as well as rocketing entertainment and travel expenses.

Leaving aside the optional expenses, medical expenses are seriously underestimated in the planning stages. Life insurance may no longer be necessary, but the costs are replaced (exponentially) by long term care insurance. I'm continually struck by how much medical costs run even where health is relatively ok.

Many believe they will be able to stay in their (paid for) home, but find it is necessary to re-locate to a residence such as a condo or co-op. Fees and taxes alone can rival a mortgage in some places. People who have never spent a penny on cleaning services may now find that necessary. Ditto for lawn services or other personal services.

3. Older People Need More Bonds

4. You're Money Lasts Longer if You Move

In this section, the author talks about comparing all taxes (state income vs. sales tax vs. property tax). Additionally, not every retiree moves from an expensive area to an inexpensive one. The opposite might be more pragmatic ad that is something to consider. Quality of life factored in, some choose to follow their children to more expensive areas, or return to the expensive area because that is home.

Knowing a little bit about what nursing assistance can cost, having family close by and available to help could well be a more frugal choice over trading in more expensive digs for less expensive ones.

5. Uncle Sam Has Your Back

Medicare doesn't cover it all, necessitating supplemental insurance. Medicaid for nursing home care only sets in once you are properly impoverished. A spouse can retain some assets in addition to a home, but those assets need to cover housing, food, taxes, transportation, medical, etc. Long term care might alleviate some of the expense of nursing home care should that become necessary, but anyone have an idea of what nursing care runs even after insurance? And then there are still the expenses of the household.

More thoughts to follow I'm sure.

Owning Your Problem

I have to point my readers to a totally unexpected personal finance reflection, 10 Ways to Stay Poor Forever, featured on Budgets are Sexy by Ms. Adams. Ms. Adams, in the comments section, writes that social programs turned her into a government assistance junkie and calls her own life repugnant. What I like about this post is that the author has owned her problem. That is empowering.

I like this post because the author is taking ownership of her issue. Because it was so blunt, I originally thought it was a satire piece, but apparently not. In the 10 Ways to Stay Poor Forever, she manages to summarize months worth of blog material here at Orthonomics.

Since I can't cut and paste the post here, I will just summarize and you can head on over to the post yourself!

How to "Stay Poor Forever", the kitzur.

• Don't pay your bills.
• Rely on windfalls.
• Avoid manual labor, babysitting, and extra jobs.
• Spend your time chasing government assistance.
• Congratulate yourself on lack of a mortgage.
• Waste time finding yourself and your next career.
• Spend time on "work at home opportunities" and multi-level marketing schemes.
• Spend too much time shopping and finding deals, even though you don't have money to spend and a budget.
• Don't make realistic plans.
• Throw tantrums when you run out of money and celebrate a paycheck by spending money.
• And #11, a latte habit.

Mishpacha: Keeping a White Collar Clean

I am very thankful to those who are the eyes and ears of this blog and a special thank you to reader rosie. Mishpacha has run an article in the recent edition titled Keeping a White Collar Clean. I need to get my hands on a copy of the magazine and plan to buy a copy later this week so I can write some though. Rosie summed up some of the reasons below (underlined) and I am very grateful for the summary as the information is enhancing from a professional standpoint. Below the summarized reasons, I've put some of my own notes and hopefully this post will serve as a reminder to me to get on the ball and take some time to write about some tax and personal finances topics that I've wanted to write about but need to clarify my thoughts in order to share valuable information.

1. Foreign bank accounts and not paying taxes on them.

Foreign bank accounts are a hot tax topic lately. In the past, such accounts were often ignored and in 2004 the government enacted a penalty for those who did not report foreign accounts--owned or signature authority--totaling $10,000 or more during the calendar year. More requirements on the FBAR are available at the IRS website. I'm not an expert on FBAR reporting requirements, nor do I have any foreign accounts of my own or intentions of opening foreign accounts.

The bottom line is that all income, no matter where it is sourced, must be claimed on the 1040 (in converted American dollars). Failure to claim the income can open the door to taking credits that the taxpayer is not eligible for. Foreign income can be excluded under certain circumstances (form 2555 or 2555EZ) or a tax credit can be claimed for foreign tax paid.

2. Business that often commit fraud such as the mortgage business.

3. Due to parental support, people with homes and cars get IRS attention because they claim no income.

It is important to understand that audits are mostly triggered based on ratios. When the "numbers don't add up" it arouses suspicion. People can't be spending all their money on mortgages, business expenses, medical expenses, etc. They still need to eat and wear clothing.

Excessive itemized deductions in comparison to income is a red flag, especially for years on end. I found a reference to the ratios through a firm: for itemized deductions 45% is the ratio and for Schedule C (business income or loss), expenses exceeding 60% of income is the trigger. Mortgage interest, taxes (real estate and state income taxes), and charitable donations are the big three itemized deductions. I checked our ratios and was please to be well under the audit trigger for both schedules.

I once had a Shabbat lunch with someone whose ratios had triggered an audit and the IRS examiner asked him "what do you live on?" I don't think "G-d provides" is the answer the auditor wants to hear. So if your ratios are excessive, it makes sense to have an answer. When my parent's tax return was flagged for audit, they were able to sufficiently explain to the examiner the market trend and never had to undergo the arduous process of a full blown audit as the explanation was reasonable and easily verifiable.

4. Larger than average charitable contribution deductions getting IRS attention.

I believe the IRS tracks average charitable deductions by taxpayer income. I recall reading somewhere that the average American donations between 3 and 5% of AGI (adjusted gross income). Exceeding the average is fine, but donations need to be well documented. In recent years documentation requirements have tightened. All cash donations need a receipt. A letter stating no goods or services received is required should a donation be $250 or greater. Cancelled checks or credit card receipts will suffice for donations under $250.

5. Money borrowed from gemachs that allows people to live with more than they make but attracting the attention of the IRS.

This clearly plays into the discussion of ratios above. I'd like to learn more about all of these money gemachs I keep hearing about. Out of town, we tend towards lending gemachs: simcha wear, children's clothing, baby equipment, and the like. An issue I can see arising should an auditor be presented with a bank register and out of wack numbers would be if the loans are really income, rather than loans and/or tzedakah (see the domino effect, #8 below).

6. Large checks over $10,000 hitting the banks or smaller checks that follow a pattern, alerting the government.

7. Jews incriminating other Jews during plea bargains or because they are involved in business or divorce disputes.

8. The domino effect when one fraudulent businessman is investigated and those who did business with him are investigated as well.

Retirement Advice: Get Married and Stay Married

Hat Tip: a friend

As per this article at CBS Money Watch, a study by the Center for Retirement Research shows that being part of a couple makes economic sense. The article goes on to address the benefits of economies of scale for consumption that exist for individuals who are part of a married unit. A married couple can attain the same standard of living as one person with the same income. There is some interesting analysis in the study on women's vs. men's consumption and health.

The study is a mathematical analysis and does not look at underlying factors beyond consumption patterns, resource allocation, and economies of scale as to why married couples are more successful in utilizing their resources. I don't find the take-away conclusion of the study to be particularly groundbreaking as it confirms something I have understood instinctively. I don't agree with the CBS Money Watch article conclusion that " it’s reasonable to assume that two or more unmarried people who live together and share resources would also benefit from shared consumption" as I believe that shared consumption is only one piece of the puzzle. The larger pieces of the puzzle would be the factors of commitment to the unit, stability, an underlying satisfaction within the marriage that often changes consumption patterns, and shared goals focused on the unit, not the individual.

It isn't unusual for younger singles to believe that marriage will put a damper on their finances. I don't think such is usually the case, so long as there is (reasonable) marital harmony. The advice "get married and stay married" is solid financial advice! What should be added is that increasing one's satisfaction within the marriage will improve the bottom line.

Coverdell Update

I have great readers, with great suggestions, and great questions. Julie writes:

While we are asking questions, what is the status of the Coverdells? Are they part of the Bush tax cuts that will continue for the next two years? Will we still be able to use them to fund private school education K-12? Does the old limit still apply?

I'm going to forgo writing my own post and pointing readers to one of the excellent financial sites out there, Saving for College (division of Bank Rate) on the Coverdell Fade-Out.

Certain Coverdell provisions are scheduled to sunset if Congress does not vote to extend certain provisions such as the ability to use the Coverdell for private K-12 education. Should Congress not extend the Coverdell in its current form, contributions will be further limited from $2000 a year to $500 and funds will be restricted to college expenses only after December 31, 2010.

Some will roll their tax advantaged Coverdell IRA into a 529 College Savings Plan. Others might leave their Coverdell in place. Some might spend their funds (and quick).

We will be leaving our Coverdells in place. Investing is not my strong point, but I like the flexibility to invest in a whole host of funds, which is not possible under the 529 plan. Having both the Coverdell and a 529 for my children gives us a chance to diversify what investments we do make. While I am sad that the gains will (likely) no longer be available for K-12 expenses, when the market bottomed out, I already mentally wrote off being able to use these custodial accounts for K-12 expenses. I'm not willing to take a loss when we can expand our investment time frame and come out ahead. So, college it will be! Thankfully I wasn't counting on spending this money in the near future. When we move money into restricted accounts, we play the mental trick of "forgetting about the money."

Check out the Coverdell fade-out article and let me know your plans if you own Coverdell accounts.

Year End Financial Checklist

It is hard to believe that another calendar year has almost come to an end. Perhaps it was because I was still dealing with normal April, May, and June client projects come October that the end of the year has snuck up on me. Feel free to add more items to this very incomplete year-end checklist. Here is what is on mine:

1. Review all entries in my accounting software to make sure there are no errors, computer or human. Last night I caught some computer errors. Believe it or not, a person can categorize something correctly in their software, and it can show up in the wrong area. I split my income into employer income (W-2) and self-employed/contract income so I can calculate self-employment tax amounts. Somehow, there was Schedule C income that showed up under my W-2 category. There was no entry problem, so I eliminated the category class and tried again until the computer put the income into the correct category. (Necessary for step 2).

2. Review books to make sure depreciation and mileage have been taken. Fairly self-explanatory, but many self-employed people miss these non-cash expenses when putting together their year end tax records. Also, make a print copy of the mileage log for records.

3. Cut year end tzedakah checks, or not? Make an additional mortgage payment or not? Unless I'm mistaken, we still are operating in the arena of uncertainty for 2011 tax planning, but it looks likely that for at least two years tax brackets will remain unchanged. Those tax payers sitting on the edge of two brackets or on the edge of credit phaseouts, will need to crunch the numbers and make the best informed decision they can despite the uncertainty. Deadline: December 31, 2010. Below are the 2010 tax brackets. My apologies for format and leaving off head of household. Exemptions remain the same, as does the standard deduction for all but head of household ($50 increase).


Tax Brackets as per Bank Rate
Married Filing Jointly Single
10% Bracket $0 – $16,750 $0 – $8,375
15% Bracket $16,750 – $68,000 $8,375 – $34,000
25% Bracket $68,000 – $137,300 $34,000 – $82,400
28% Bracket $137,300 – $209,250 $82,400 – $171,850
33% Bracket $209,250 – $373,650 $171,850 – $373,650
35% Bracket Over $373,650 Over $373,650

4. Run a final calculation for estimated taxes owed at both the Federal and State levels and pay up possible shortage. Baruch Hashem this year was better than expected. During the 4th quarter, in anticipation of the "Bush Tax Cuts" expiring, I worked to push income into 2010. So, now it is time to make sure that we are paid up by January 15, 2011.

5. Figure out how to spend down the excess funds in the Flex Spending Account. I've never overfunded an FSA, but I can't complain this year because the reason for the excess funds were all positive. Nevertheless, the money is there for the spending and I need to put together a plan. Over the counter reimbursements will end in 2011. So, while I can deal with dental appointments, visions appointments, new prescription glasses or sunglasses purchases, and physicals in 2011, if I plan to stock up on a few OTC medications, I better plan a trip to the drug store soon. Deadline: March 15, 2011. But, I prefer to be on the safe side, so the earlier the better.

6. Fund the Coverdell Plans by the end of the calendar year. These plans might also be called IRAS, but their funding schedule is different. but my bank seems confused as to the deadline which a reader pointed out should be April 15, 2011. Deadline: December 31, 2010.

7. Fund IRA or ROTH IRA. Deadline: April 15, 2011.

8. File that growing stack of papers, make sure tax letters are on file for any donation over $250. I'm certain this note just pertains to me. Certainly everyone else has kept to their schedule of daily or weekly filing (smiles). Deadline: Before putting the tax return in the mailbox.


Other tax payers might be interested in re-evaulating the portfolios, selling loosing stock, writing up a new will, making sure their insurance coverage is adequate, or creating a new budget and financial goals. My list is far more barebones, but should keep me busy enough.

$250,000 in Income = Spend Wisely

I'm not quite sure how $250,000 in income (an income level unimaginable to me, or in the words of the article "an unattainably high annual sum") became the threshold of "rich", but somehow that number is thrown about both in our world and in the outside world.

While the magical quarter-of-a-million dollar figure can certainly make a family comfortable (especially if the distribution of the income earners is favorable), such income is not indication that one can throw conscious to the wind.

One of my readers (as well as my husband) pointed out this financial article that is making the rounds, Down and Out on $250,000 a Year. What can we learn from this article and it's eight city analysis:

1. Location, location, location: Living on either coast is expensive. If you can manage to earn a high salary away from the coasts, you will automatically be better off.

2. Location, location, location: Even better if you can earn a high salary in a income tax-free state or in a location where property taxes are more under control.

3. House, house, house: Especially considering the couple presented uses public schools, it makes a lot of sense to live in a better area which can be costly, but this presentation is a good argument for "moving on up" and rolling the money one is able to *save* while living in a nice, but less expensive, area with good home resale when the kids are younger. No matter how you cut it, paying a mortgage (even with 20% down) on a home in an expensive area is hard to sustain, especially if the financial situation changes for the worse.

4. Savings, savings, savings: Saving the max in a company's 401k tax plan makes a big difference in your tax bill and allows you to put away from the future. If you don't do this, your tax bill will be even higher and every additional dollar you earn will be worth less.

5. Used, used, used: Your car that is. Two car payments when you make a quarter of a million makes just as little sense as two car payments when you make a lot less.

6. Debt, debt, debt: Student debt of the couple presented isn't particularly "high" but it, combined with the high mortgage and the car payments is a killer. Getting rid of debt is key to getting and staying ahead.

7. Shave, shave, shave: Even though our couple doesn't go overboard with expenses, if they want to get ahead and stay ahead, they need to shave expenses from each area of their budget. That would be the "little" expenses including activities for the kids, annual vacations, entertainment, dog, transportation (public transportation makes a lot of sense given parking and gas in this budget!), cleaning help, dry cleaning, and food (both take out and lunches--brown bag it!), in addition to controlling he big expenses listed above including the mortgage and automobiles.


As a final note, I have a rule to NEVER include investment income in a regular budget and was a bit surprised to see it included here, although the article shows two bottom lines, one with only earned income and one without earned income. It is a style issue, but I am of the opinion that investment income is best kept in a separate budget and then moved into other investments. If you need your investment income to meet your bottom line, you are way over budget, even if you include 529 college savings in the budget. My preference is to create a separate budget for such investment income and fund other investments from the spin off, or put away the extra for every-ten-year purchases. (Clarification based on a comment: my rule to not include investment income in a regular budget is not actually a never, ever. Obviously, a family in retirement will be relying on their investment income. My comments were more based on the type of budget I would create for a young/youngish family that has limited investment income. To get ahead, I highly recommend that such income should be used to strengthen one's financial position, not building such income into the budget for consumption and meeting regular expenses).

Even if it is hard to relate to the (young) $250,000 couple (there is still $15K in the budget for childcare) and it is easy to imagine that as the kids get older some of the expenses could ease, the article underscores just how important thrift is at all budget levels. And, it underscores the difficult situation that higher income earning couples in our own communities have when tuition is piled on.

P.S. I do realize that some of the out-of-pocket medical expenses are also exaggerated for a family without major issues. I don't know how one gets to over $4000 dental and over$5000 medical with insurance and without (bli ayin hara) major issues. However, the point of the article and anaylsis is still infomative and educational.

PSA: Seminar, The Jewish Family's Approach to Money

This is a Public Service Annoucement (that I did not put up in a timely manner). One of my readers alerted me to a course being given by a Rabbi Fishel Mael, Phd through Mesila in Baltimore. The course is advertised as "a practical course for couples under 30."

The course will be given Sunday evening, December 12, 2010 at 7:30PM. It is slated to run 2.5 hours and RSVP should be given to mesilabaltimoreoffice@gmail.com. The location of the course is at Bais Haknesses Ohr HaChaim on Clarks Lane.

As always, I welome guest posts and I especially like guest posts from seminars. If a Baltimore reader is attending, please do write to me at orthonomics at gmail dot com.

My apologies that my blog is in a rut. I have a lot that I'd like to post and no real energy at the moment. But, energy always seems to return.

Be Proactive, Not Reactive

Rosie has been pointing me to some interesting excerpts and stories in the Hamodia (thank you for being my eyes and ears). I was able to take a peek at one story she pointed me too. In the magazine, there is an article by Rebbitzen Tzipporah Heller and in the last paragraph she pleads with wives to stop their husbands from committing fraud (she notes that not such a small number of frum men are behind bars) by being alert to spending that doesn't add up and, where suspicious, confronting the husband and putting a stop to it.

The story that preceded this warning, was unfortunately rather convoluted. Although I certainly was pleased to see that at least one magazine is broaching the subject of fraud, I prefer a more direct approach and this wasn't it! The story, as laid out by the Rebbitzen, featured a couple that started off life with the struggles of a kollel family. The husband later entered the insurance business and yet as the tuition bills grew, the struggles never really let up. Yet, each big-0 birthday featured a rather large gift and the wife starts to think perhaps she should ask questions, but doesn't. (Hope I got that right).

At least on my end, the every-10-year-large-gifts really didn't raise my suspicion that there was something fishy going on (e.g. at 40 they took a trip to Israel and at 50 he bought his wife a large candelabra--as I recall). Sure, the numbers might not add up, but 1. a large ever 10 year gift is not particularly out of reach and 2. there was no other indication of regular expenses that should serve as warning signs (large mortgage, luxury cars, bling). The only real large and unaffordable expense that the story touched on is completely ordinary in our own society that it fails to raise a red flag, even if it should. (That expense: TUITION).

The article made me think just how unqualified your average woman is to detect her husband's fraud, especially where it is more subtle, and how needed advice and approaches must be much more concrete. Additionally, I don't care at all for the idea of getting suspicious and then confronting one's spouse. Why not suggest a more healthy, normal approach to *family* finance and be involved as a matter of course, not a matter of suspicion?

What I see as the real issue is that too many women simply aren't involved in their own financial lives and are at risk to be blindsided (and not just with something unusual like having the authorities show up one morning at your door to arrest your husband, but with something more usual like hitting the point of insolvency because of mounting debt). Some women don't want to worry their heads about such financial matters and prefer ignorance. Some women like to excuse their lack of involvement with some sort of "religious" excuse. Some husbands feel more manly when they deal with the money. . . . even when the wife is the primary income earner. Whatever the reason for non-involvement, if things go wrong the battle will have to be waged on a steep uphill grade.

The bottom line in my book is that if both spouses are not involved with the budget, that the family is not just susceptible to getting caught on criminal charges, but running their financial lives into the ground. I would say this is even moreso when one party's relationship to money comes from looking at what "everyone" else is doing, rather that taking a look at the only thing that really matters: the black and red budget!

So here is my advice: don't be on the lookout for fraud and in the position where you have to "confront" your husband (spouse), get involved in your own finances:

*take an active role in your financial life from day one. If you haven't taken a role up to this point, make it your duty to start being a part of this area of your life. Division of duty can still fall to whoever is best suited for the job, but neither spouse should be in the dark.

*always spend within your means and make guidelines for savings and debt. I don't believe every 10 year gifts are the trigger for fraud. My professional background and experience tell me that it is the regular expenses. So, make it a priority to not yourself on a path of monthly struggle.

*maintain balance sheets of assets and debts. Gifts can be a surprise, but there should be no mystery as to where the money to buy such a gift materialized from.

*learn about the industry that your spouse is engaged, what can be expected income in terms of income as well as other relevant information about the business. It is fairly standard practice for wives/spouses to be involved in the finances of a family owned business or even partnership.

*make integrity and honestly a focus of your marriage.

*don't pressure a spouse to provide what is not reasonable (see above regarding knowing what is reasonable).

Readers, add your comments

Scams: Signs of Vulnerability

I found this article a Financial Planning Association Website "Signs Your Elderly Parents Need Help — and What to Do About It " and the signs noted that indicate that things might not be quite right ring true in my own experiences, both personal and professional. Sadly, a scam is born everyday and the unscrupulous are well aware of who to target.

Below are the warning signs from the article and some short hand notes both from the article and from my own observations/experiences.

Money mismanagement:

Warnings: Bills piling up and are going unpaid, cash is being misplaced, cash flow is unusually tight, collection letters and disconnect services warnings, letters from the IRS and other tax authorities regarding unpaid liabilities.

Advice: Increase automation. Seek reputable, insured professionals to help and monitor their work.

Financial scams.

Warnings: Increased phone traffic, especially telemarketers, but don't discounts increased phone traffic from "banks" and "credit cards". Checks made out to unfamiliar companies. Changed spending habits. Increased junk mail, especially contests and lotteries for "free" trips, sweepstakes. Increased junk mail for cheap consumer products. Responding to the mail and phone calls. Bills for services never ordered or received.

Advice: Monitor the caller ID, put on the no-call lists. Same for the internet.

Financial abuse.

Warnings: Isolation of the elderly by other family members or caregivers, friends and family members developing a relationship out of the ordinary, access or information about finances to given to those who never had access in the past.

Advice: Don't be afraid to investigate with Adult Protective Services or even the police.

Unsuitable financial products.

(I'm glad the article mentioned this because although certain things might not legally qualify as scams, they serve as warning signs).

Warnings: Buying financial products that aren't appropriate, especially though door-to-door salesmen. Paying outrageous sums for financial services (and other services for that matter). Beyond financial products, changes to estate plans salesman who have just showed up on the scene unsolicited.

Advice: Listen and be alert. And, do your legal homework where necessary.

Gambling.

Warnings: Trips to casinos, playing the lotto. Family member talks about their winnings.

Advice: Check credit card activity, internet activity.