Paul Ferraresi

An emergency fund is needed to meet unexpected expenses that are not planned for in the family budget, such as short-term illness causing a loss of income, unexpected medical expenses, property losses that purposely are not covered by insurance (deductibles and co-insurance) and to provide a financial cushion against such personal problems as prolonged unemployment or some other financial crisis.

Need for an emergency fund has received greater attention in recent years. Many capable people have lost their jobs because of mergers and acquisitions, economic dislocations or plant closings. A reasonable emergency fund can help to prevent a temporary unemployment from becoming a financial crisis. The fund will give the family time to adjust without having to drastically change its living standards or disturb other investments.

The size of the needed emergency fund varies greatly. It depends upon such factors as family income, number of income earners, stability of employment, assets and debts. The size of insurance deductibles, health and property insurance exposures, and the family’s general attitudes toward risk and security are also important. The size of the emergency fund can be expressed as so many months of family income. As a guideline, it is advisable to reserve a minimum of two and a maximum of six months of income. The larger the percentage of your monthly expenses that are fixed and must be paid, the larger should be the emergency fund.

By its very nature, the emergency fund should be invested conservatively. There should be almost complete security of principal, marketability and liquidity. Within these investment constraints, the fund should be invested so as to secure a reasonable yield, given the primary investment objective of safety of principal. Logical investment outlets for the emergency fund would include:

• Bank savings accounts (regular accounts)
• Credit Union accounts
• Money market accounts
• Mutual Funds
• Life insurance cash values

Access to emergency funds is important. If check-writing services are available, even at a fee, it might be wise to arrange for them. The careful person may also want to have some ready cash available for emergencies, even if it is non-interest earning. Such an individual might consider setting aside $200 in cash at home to be used ONLY in case of dire emergency.

Nearly 32 cents out of every dollar spent by American families is for groceries and household items. According to the U.S. Department of Commerce, this percentage is consistently declining – and for persons that are more affluent, the percent allocated for food and drug store items is much lower. The average is three trips a week to the grocery store and one or more stops at a drug or discount store. People are spending money they could otherwise be saving for the future because they fail to compare, shop wisely, and get the best value.

Stores today are cleverly set up and well-merchandised. Manufacturers and food producers fight for eye level space on the retailers’ shelves. They set up elaborate, eye-catching displays. All of this is designed to one specific end. Get the shoppers to spend. In addition, there are also companies that place merchandise in the stores specifically to induce impulse spending.

Consumers may take several steps to spend smarter, reduce the number of trips to stores, and overall spend less money on household and grocery items. Many shopping techniques are habitual. For instance, we frequently go to the same stores, on the same days, buy the same products, and do not use a list or comparison shop.

Economizing on grocery and household items takes imagination, and requires some financial self-discipline, a bit of practice and a little time to develop new habits. It requires full family participation. Having one spouse a saver and the other a spender provides no progress unless the spender ceases to be a shopper. It is also important for children to learn and understand the importance of spending smarter, comparing quality, price and value, in addition to saving to buy the bigger items without borrowing. The NCFE offers the following spending tips before your next trip to the store:

• Use a list when shopping

Put anything you want on the list, but do not add to the list once you get to the store. Using a list will help plan for your needs in advance, so take advantage of sale prices and avoid impulse purchases.

• Go grocery shopping alone after a meal

If you go shopping hungry or with another person, you are shopping for more than one appetite and the result is always increased spending.

• Watch for store ads

Ads are in newspapers, your mailbox and flyers distributed in the stores. Check for sale prices on the items you regularly purchase. Compare prices with other stores, especially those you do not normally visit.

• Pay special attention to sale days

For example, some stores have no sale prices in effect on Monday, traditionally a busy shopping day. Carefully plan purchases, noting on the list which items are sale priced and items where a coupon can be used.

• Always spend cash

Take time to get cash before going to the store. Nothing impacts our mind like taking cash from our wallet or purse. Many people who use credit cards rarely know how much was actually spent, until the statement comes. Many people who write checks simply do not take the time to calculate the balance and have no idea what is left over. Paying cash causes us to think ahead and plan for tomorrow’s needs.

• Take advantage of coupons and rebates; they do add up

Regularly shop at stores that double coupons; take time to watch the papers for grocery coupons. Look for items on the shelf that also have coupons included. It only takes about twenty minutes a week to review grocery ads, clip the coupons and plan a weekly or bi-weekly grocery-spending trip.

• Always shop by the unit price at the stores

In most states, retailers must by law post the unit cost on the shelves. It used to be the larger the pack – the better the price, but that is not always so these days. For example, a 50-cent coupon, doubled on any size of soap detergent could make the smallest size the most economical in terms of least cash spent. Many times, you may get a box of a less expensive detergent, such as the store’s brand name or a generic equivalent for close to nothing, because of the doubled coupon savings.

• Avoid buying plastic bags

Most stores give these away free. Plastic bags are available in the produce and meat sections. Separately bag each item and save them for re-use. When asked if you want either a paper or plastic bag, ask for paper inside of a plastic bag and you will have an ample supply of ready-made garbage bags.

• Avoid buying cleaning aids, cleansers, etc.

They are very costly and prices vary greatly with the brands. Some companies market a cleanser (and now specialty wipes – what a waste) for virtually every type of household project. The best cleanser in the kitchen is simple soap powder in ammonia. No need to buy a brand name; ammonia is ammonia. If you want it soapy, then add some detergent. Another valueless item is dish soap promoted to be gentler to hands or cuts grease better. If your hands are that sensitive, use the longer lasting rubber gloves and save money on detergent by using generic brands. Hot water and any detergent will cut grease.

• Plan meals in advance

Keep in mind wise use of leftovers or freezing for later use when purchasing meats, etc. and making pasta dishes, for example. Consider buying meat items that you use regularly in bigger quantity, freezing for later use those portions not needed that week. This can save up to 20%!

• Avoid prepared items

Cereals, breads, desserts, juices, beverages, etc., mixed and prepared at home are always a better value than pre-packaged items. The same is true for pet foods, and many experts agree dry pet food mixed with water is better than canned food.

• Be cautious about adding non-food items to the list

These include health and beauty items, paper and plastics, utensils, brooms, brushes, film, etc. These items have the highest profit margin for most grocers, which is exactly why they are prominently displayed in the stores. Usually, a better value can be obtained at discount drug stores.

• Stick to the list and plan in advance

Purchase to take full advantage of sale items and two-for-one deals (if the price is not inflated to compensate). When possible, shop the outside walls and stay out of the aisles. Most food stores situate the four basics (produce, meats, dairy and breads) on the walls. They most often place all the cookies, cereals, beverages, canned goods and the nice-to-haves in the aisles.

• Check the checker

Note the prices as you select items and then make sure the same price is posted at the checkout. Check the register tape again after leaving the store, unintentional mistakes are often uncovered, especially with large purchases. Many times a sale price is listed in the store, but not reflected at the checkout.

Finally, if you are trying to spend money more wisely, reading this once will not suffice. Place it in the drawer with coupons and reread it before each shopping trip. You will save from $600 to $2,000 per year, depending on family size and budget allocation.
Source: Institute of Consumer Financial Education (ICFE)

Every workshop I conduct often leads me to ask the participants: “In the future, do you think tax rates will be going lower, staying the same, or going higher?” Without question, 99% of the people vote higher.

One does not need to be a tax attorney to know what is ahead for all Americans. Here is why rates are going higher:

• Congress moves rates from high to low and back to high. You have been in a “low” period.

• Effective 12/31/2010, the Bush tax cuts will expire, so rates go back up to pre-Bush. This means an average of 3-5% higher for every bracket.

• The war on terrorism will continue for another generation and will require increasing amounts of money.

• Social Security and Medicare are broke. The Baby Boomers are just starting to lean on these programs, so both programs will need increasing amounts of money.

• We have a financial crisis not seen in two generations – a stimulus and mortgage bailout program were failures and thus, will require more monies to pay back these borrowed funds.

• The present administration is designing programs so that 45% of American taxpayers (the payers) will provide for 55% of American non-taxpayers (the takers). Thus, the payers (producers) will be required to ante up more for the takers (non-producers).

Now, all the hype has been…”tax the rich.” Be careful what you wish for…you will become part of the rich very soon, according to the present administration’s plan.

• A report from the IRS for the 2008 tax returns filed, only 256,000 returns out of 142 million returns filed, which is the top 2%, had an adjusted gross of over $250,000 (what some may think is rich). This top 2% paid 45% of all federal taxes collected even though they only earned 25% of all income. Hmmm…. I thought the system was to be fair…you know, top 10% pays 10%, top 50% pays 50%, and so forth. Right now, 50% of all those that earn income pays NO TAX!!

• Even if they confiscated 100% of the income of the top 2%, it would not touch the deficit. Do the math yourself.

• They asked Willy Sutton…“why do you rob banks?” He said…“cuz that is where the money is.” Look for Congressional Revenuers to come looking for more money… “where is the money” – the middle class.

To make my point, let’s look at a few new taxes that have come into effect due to the new health care law:

1) Medicare taxes will increase by 0.9% on joint household wages above $250,000 (on 1/1/2013). Thus, if a couple had $400,000 in wages, they would have a new tax of $1,350 ($150,000 x 0.9%). This amount is not indexed for inflation. So, in the future more people will creep into this area. Also, as with every tax they place on high income earners, it eventually goes down to the middle class.

2) The same upper-income couple above will be subject to a 3.8% new tax on unearned income (interest, dividends, royalties, rents, and capital gains). Say our couple earns $50,000 in interest from their bank accounts. This would produce a new $1,900 tax bill for them (sources: House of Representatives and CBO). This will have a dramatic negative effect on savings and the stock market. In all cases, see your tax advisor for details.

3) As you sell your home in the future, there will be a 4% tax on the gross sales proceeds for everyone. (Hmmm…I thought no new taxes on those earning less than $250,000 – then, they said only on those above $200,000, then they said on those above $150,000.)

You know Congress does all its tax planning based on the “static” approach. That is, they assume everything will stay static and no one will do anything to avoid taxes. In our example above, our couple will incur over $3,000 in taxes and they will do whatever it takes to lower or reduce the taxes. This avoidance will lead to less economic growth, fewer jobs, less tax revenue coming in, then they will have to raise taxes somewhere else and…well, you connect the dots. Just cut spending. Stop this madness!!

Now, I have just covered a few of the new taxes. Rather than waiting for the sword to cut you, I am demanding you take action now…or forever hold your peace.

I have been advocating for years to get your money into programs that will allow your money to grow tax-free. You can have access to the money tax-free at any time and when you die, it transfers income tax-free. This strategy is a layup with a ladder, or a stolen base on a wild pitch.

Please contact us at (713) 871-5919 or at conswella@fgmci.com to take action now. If you wait until the rates go up, it will be too late.

Ah yes….discipline or regret.

I have worked with couples in their comprehensive financial planning for more than 37 years. It is amazing how “money struggles” emerge and create conflict with our money partner for life.

Men were once the main “bread winners” and many today feel they should have complete decision making authority about the couples’s spending, saving and life goals. Women, typically, are socialized to share decision making, no matter who makes more money.

These conflicts may come about as opposites attract. (Funny I always have seen a spender marry a saver. Rarely, do you see two spenders marry or two savers marry).

Research has found that couples may be polarized in seven behaviors.

Conflict No. 1: Saver vs. Spenders
The market meltdown, credit crunch, and job insecurity all give Savers an edge today. However, a more frugal lifestyle will increase Spenders need to soothe or reward themselves for the stress it causes them. As a result spenders in power-struggle relationship may well feel even more judged and controlled. Instead of continuing to sacrifice for a day that may never come, they may rebel and sneak gratification now.

Conclict 2: Worrier vs. Avoider
The financial crisis will intensify the stress modes of these money types, a common couple’s polarization. Right now, many Worriers are cringing at the latest market news and losing sleep to visions of bankruptcy, while Avoiders blithely ignore financial headlines and file their 401(K) statements unread.

Conflict 3: Planner vs. Dreamer
In a Couple whose stored-up resentments typify the power struggle dyamic, Dreamers will fantasize about life where work is no longer central. They may want to travel to exotic places, sell the house and buy an RV or start a whole new direction. Meanwhile, their Planner spouses are trying to calculate a retirement budget, estimate portfolio yield, or, chart their Social Security Options.

Conflict No. 4: Money Monk vs. Money Amasser
This is one of the hardest couples’ oppositions to heal. Money Monks tend to look forward to retirement as an opportunity to simplify life and give it more meaning and purpose, far away from the corrupting influence of money. Their Amasser partners, on the other hand, will be focused (possibly even obsessed) with growing their assets so they can feel more successful, powerful, happy, and secure.

Conflict 5: The Risk Taker vs. The Risk Avoider
In the The Third Age, The Risk Taker (often male) may want to sell everything and buy a boat to sail around the world. The Risk Avoider, by contrast, may prefer to deep her attachment to home, family, and friends rather than radically changing her life.

Conflict 6: Money Merger vs. Money Separatist
When a wife inherits money from a relative she may want to keep some or all of it separate. If her husband has been the primary breadwinner so far and the couple has totally merged the rest of their money, his reaction is likely to be hurt and anger: “All these years when I made most of the money, you were fine sharing it. Now you finally have some money to share, and you want to keep it to yourself?” He may perceive her as selfish and unfair, and fear that she doesn’t trust him or is even planning to leave him.

Conflict No. 7: Polarizing and Different Priorities
Most people are a blend of these money styles. In addition, just about any couple will take the opposite stances on individual priorities. This may be because of their different goals. For example, he wants to go to graduate school and she would rather contribute that money to a Third World Country.

Whatever their polarization, both spouses need to become equal partners for the sake of a successful intimate relationship. Power and decision – making should be shared, no matter who is still working and who isn’t, and no matter who makes or made the most money.