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Checklist and pen When a joint investment account is divided, the financial institute will use only one Social Security number to report the earnings and thus only one 1099 will be issued for that account. For example, following their divorce, Dick and Jane divided their joint investment account and transferred their own share into an individual investment account solely in their own name, on November 1st. If the “primary” Social Security number on the joint account is Dick’s, he will receive one 1099 for the joint account earnings earned from January 1st– October 31st and a second 1099 for the individual account earnings earned on his individual account from November 1st – December 31st. And, Jane will receive only one 1099 for the individual account earnings earned on her individual account from November 1st – December 31st. If the goal is to share the tax liability for the joint investment account earnings, this can be accomplished in a few ways.
  • The tax liability is projected during the divorce process and an adjustment is worked into the property division.
  • The spouse who received the 1099 adds the investment income to their tax return and language is added to the decree outlining the agreement on how to share the tax liability at tax filing time.
  • The spouse who received the 1099 can “nominee”the correct portion of investment income to the other spouse by filing a 1099 and 1096 with the IRS and furnishing a 1099 to the other spouse.
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Friends for lifeYour divorce is over. It’s time to start sorting through all the things you need to do, to get your financial life in order.  Here are just a few tips to help you thrive financially, as you move into this phase of your life.  Pay Off Credit Card Debt One of the most important steps to achieve your financial goals is eliminating credit card debt. Start by paying off the balance of one credit card at a time, by either:
  • Paying off the highest interest rate credit card first, or
  • Paying off the smallest balance first, then applying that payment amount to the next smallest balance
And, always pay more than the minimum. Build an Emergency Fund Life has a way of throwing financial curve balls. To pay for these unexpected expenses, it’s important to have an emergency fund. A good rule of thumb is to set aside at least 3 to 6 months of expenses in a savings account earmarked for emergencies. This will keep the money “out of site, out of mind” and help reduce your stress level when financial emergencies pop up. Know Your Credit Score Despite its importance, many people don’t know their credit score. Credit scores assist lenders in determining the interest rate you’ll be charged, so you’ll want to know yours and work on improving it. To get your free credit report, visit www.annualcreditreport.com. Reviewing your credit report may also help you catch signs of identity theft early. Start Saving for Retirement We’ve all heard it before, but it truly is essential to start saving for retirement as early as possible. This is because you want to take advantage of compounding – generating growth not only on the original investment, but also on the return you’ve already earned on the investment over time. Compounding allows the potential for your initial investment to grow exponentially. Also, make sure you contribute at least enough to your company retirement plan to get our employer’s match. Don’t pass up free money! Create a Budget Although it’s not always fun, following a budget ensures you will have enough money for the things most important to you. A budget helps you find money to fuel your dreams. Refer to the attached Create Cash Flow* to help you put your budget together. One of the most important things to remember is to pay yourself first! Always set aside money for your emergency fund and retirement before any discretionary expenses. * a chapter from my book Ultimate Women’s Financial Guide to Thrive after Divorce   All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
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market volatilityThere’s no question that periods of increased market volatility, like we have seen recently, can be unsettling. However, deciding to move to the sidelines versus staying the course can have long-lasting implications. In fact, making emotionally-based decisions in regard to short-term market events is one of the fastest ways to derail your long-term investment strategy. This is because it’s impossible to accurately time the financial markets. Studies have shown that investors reacting to market events tend to opt out at the worst time – when markets have fallen considerably. They then buy back in when they are certain the markets are back on track, but that ends up being a higher price than when they sold. On the other hand, staying the course and remaining invested and focused on long-term investment goals has proven helpful in creating long-term growth. This is achieved by buying at lower prices when the markets are down and selling only to rebalance your portfolio or fund financial goals. A time-tested approach to managing investments through periods of uncertainty is to focus on asset allocation. An asset allocation that is aligned with your financial goals and tolerance for risk allows you to concentrate on your long-term objectives instead of getting sidetracked by short-term market fluctuations. While asset allocation cannot guarantee a profit or protect from a loss, the proper asset allocation can help eliminate the potential for emotional decision-making that could have an adverse impact on your long-term investment strategy. Following a divorce, consider checking in with your financial advisor to make sure your portfolio’s asset allocation is well balanced and appropriate for your risk tolerance and time horizon.
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124129198While we financial advisors need to know a lot about numbers, we often use some shortcut “rules-of-thumb” to make quick estimates.  Two of those rules-of-thumb are the Rule of 72 and the Rule of 115. The rule of 72 is a shorthand way to figure out how long it will take an investment to double in value, if one knows the annual rate of return or interest rate.  The equation can also be switched around to figure out the annual rate of return if one knows how long it took for the investment to double. It is called the rule of 72 because the doubling time is figured out by dividing the rate of return by 72.  For example, an investment earning 6% per year will double in 72/6 = 12 years.  An investment earning 8% will double in 72/8 = 9 years. Flipping the equation around to determine the rate of return is done as follows.  If an investment doubles in value in 10 years, the annual rate of return is 10/72 = 7.2%. The rule of 72 is an approximation that is based on annual compounding.  The true results will differ slightly. Many investment returns are based on continuous compounding which grows a bit faster than annual compounding.  For situations involving continuous compounding, use 69.3 instead of 72. The Rule of 115 is used to figure out how long it will take for an investment to triple in value.  It follows the same process as the Rule of 72.  If an investment earns 7% per year, it will take 115/7 = 16.4 years for the investment to triple in value.   As with the Rule of 72, the Rule of 115 is an approximation.  There are some practitioners that learned this as the Rule of 114.  115 slightly overestimates the time it takes for an investment to triple and 114 slightly underestimates it. If you have REALY big aspirations… use the Rule of 144 to calculate, your investment will quadruple!
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551985347Is money a little tight and it seems you’ll never get ahead in life? Perhaps it’s time for you to invest in yourself. In fact, investing in yourself can be the most profitable investment that you can make.  Three possible investment options include investing to improve your skills, your creativity and your health. To invest in your education and skills consider these investment options:
  • Increase your education – get an advanced degree or relevant certification that will qualify you for a better job.
  • Increase your skills – for example, become more efficient by learning about computer software or even a computer language. Take courses that provide skills which will make you stand out when a promotion is considered, such as communications and managing people.
  • Expand your knowledge – are there technical aspects of your job that you just assume are someone else’s job to figure out? Take a deeper dive into the technical aspects of what your department does.  Also, keep up-to-date on the current trends or advancements in your profession or industry. If something strikes a chord, bring it up at work and you may get noticed for your interest in improving your skills, the office or company.
To invest in your creativity, you need to expose yourself to ideas, concepts and experiences that help you think outside the box. Consider trying new things such as:
  • Take an art class such as drawing, photography or jewelry making
  • Learn to play an instrument
  • Take a trip and really learn about the people, their culture and history. Heck even try learning their language.
  • Take up a hobby that involves learning and doing rather than buying and collecting.
Finally, invest in your health. You can avoid spending a lot of money on prescriptions, doctors and hospitals by staying healthy. And, when you have less stress, you become a better person and more efficient worker.
  • Make healthy food choices
  • Make time to move – walk, bike, hike, play tennis, do yoga.
  • Make time to relax. Learn to enjoy slowing it down. Read a book, take a trip, learn to meditate.
  • Make time for family and friends. Learn the skill of conversation, accept and don’t judge.
  • Make time for yourself. Listen to what your body is telling you.
A full life is measured by so many dimensions other than wealth.  You need to figure out the dimensions of your life that make you feel fortunate, whether the stock market is up or down.
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172399714Did you know that there is a National Financial Literacy Month?? Well, there is! The powers that be have selected April to be the Financial Literacy Month. Why April rather than July probably goes to the fact that so many people are acutely aware of their financial situation as they write out a check to the IRS. So, what is financial literacy and how does one become more financially literate? Financial literacy is about taking control of your finances by fully understanding the impact of your spending, saving and debt obligations on your financial well-being.  It is about making well-informed purchasing decisions and understanding the difference between wants and needs.  A financial literate individual understands the importance of saving for the long-term. They are committed to the budget that they created, which includes saving for specific large purchases, as well as longer-term financial goals such as a comfortable retirement. Financial literacy involves understanding the pros and cons of debt and being proactive about managing one’s debt obligations.  A financial literate person knows the importance of maintaining a good credit score and gets a copy of their free credit report annually at www.annualcreditreport.com.  Financial literacy is about recognizing when you have a problem managing your debt and getting assistance to help you manage the situation. Financial literacy is also about communicating openly with your significant other about financial matters. It is about teaching your children good financial habits such as saving for big purchases, starting a retirement account early and not getting in over one’s head in debt. So, now that you know what financial literacy is, go to www.financialliteracymonth.com to see what tools and information they have to help you be more financially literate.
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88962094-household-bills-in-shape-of-question-mark-gettyimagesOnce you have completed your divorce, the list of things to figure out can be daunting. It can be easy to push off those things that don’t seem to affect your daily routine.  Some of those things that you have been putting off are likely financial – a lump sum distribution from the divorce just sitting in cash, a 401(k) in need of rollover or perhaps a credit card balance that never seems to get any smaller. It’s time to make understanding your financial situation part of the process of building a new life. The longer you wait, the greater likelihood that your inaction will impact your long-term financial success.  If you don’t know where to start, then it may be a good idea to seek out the assistance of a financial planner.  While financial planners may have specialties, the financial planning process is fairly standard for all planners.  At the core of the financial planning processes is evaluating your financial needs and goals, and helping you take steps toward meeting those needs and goals.  The general steps to the financial planning process are as follows: 1. Determining your financial goals What are you looking to achieve? Do you need to invest that cash in your savings account or rollover a 401(k)?  Do you need to figure out how you are going to pay for your child’s college education? Do you need to get a firm handle on your expenses and cash flow? (budgeting) 2. Gathering your information If you have recently completed your divorce, this step should be easy.  For your divorce, you needed to collect all of your financial information.  You can just pass this information on to a financial planner (bank, retirement, and investment statements, liabilities (credit cards, car loan, mortgage), and your income information, such as a pay stub and a tax return.  A copy of your divorce decree also provides pertinent information. 3. Analyzing your information The financial planner will stitch together all of the financial documents in your life to create a picture of your financial situation. 4. Creating your financial plan A financial plan lays out your financial goals and your financial situation.  From there, your financial planner will work with you to create a plan of action for meeting your financial goals, based on your financial situation. 5. Implementing your financial plan Your financial plan is going to be a little different from everyone else’s plan. Implementation of a financial plan can take many forms as well.  It may involve reallocating your portfolio, setting up a program to save for college, purchasing insurance, or creating a budget. 5. Monitoring the progress of your financial plan In the stock market and life, things happen, situations change. Financial plans are not engraved in stone, never to be changed.  They have to be flexible to adapt to the changes that happen in the financial markets and in life. While the financial planning process is fairly standard across the industry, the financial products and solutions recommended by financial planners are not.  Much like your physical health, if you are not sure if the recommended products or plan of action are best for your financial health, seek a second opinion.  You are more likely to be committed to following a financial plan if you understand the financial products in your portfolio and are certain that your financial planner has put your interests first.
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Stocks, bonds, mutual funds, annuities, chances are you own a couple of these financial instruments and possibly all of them in your portfolio. Wouldn’t it be nice if someone clearly explained what they are and why you should invest in them? Let’s see if we can get the basics of stocks straight in less than 5 minutes. Stocks When you own stock in a company you are a part owner of that company. Stock (also called equities) are sold in units called shares. Each share of stock in a company represents a fractional ownership in that company. Since most well-known companies have issued millions of shares their stock, each share represents a very small fraction of the overall ownership in that company. An owner of stock (called a stockholder or shareholder) is entitled to a portion of the company’s profits if the company’s board of directors decides to distribute them. Profits that are distributed are called dividends. Dividends tend to be distributed on a quarterly basis. Not all companies distribute their profits to the stockholders. Young fast growing companies, in particular, usually choose to reinvest their profits in expanding business operations. Older established companies with few opportunities to grow their business, utility companies for example, tend to distribute a large portion of their profits in the form of dividends. In situations where the company is sold or liquidated, shareholders will receive a cut of the net sale proceeds. All the company’s creditors get paid before this happens including employees, suppliers, creditors and even Uncle Sam when taxes are owed. The chance that there will be nothing left after everyone else gets paid is one of the intrinsic risks to stock ownership. There are two ways to make money from owning stock – the cash flow from dividends and capital gains. If a stockholder sells their shares for more than the purchase price they make a profit called a capital gain.   The value of a company’s stock rises and falls based on the performance of the company and the outlook for the economy as a whole. If a company is successful, such that its business is expanding then people will want to buy its stock to get in on the growth potential. If the overall economy is expected to grow, this is expected to benefit many companies as well.   Companies tend to report on the performance of their business on a quarterly basis which can greatly impact the stock value. In between those quarterly reports the stock value is more influenced by the constant stream of reports about the state of the economy. Companies are limited by the government as to how much and how often they can issue stock. Once they issue a share of stock, that stock is bought and sold on a stock exchanges such as the New York Stock Exchange or the NASDAQ Stock Exchange. Actual physical stock is rarely exchanged anymore; brokerage accounts are electronically credited or debited for the purchase or sale of stock. Companies contract with a transfer agent to keep track of the constant changes in the ownership of their stock. Five minutes are almost up so let me just say that stock ownership is a good way to grow wealth but it must be done with a view to the long term. Stocks prices can fluctuate greatly in times of economic upheaval so it is not a place for putting saving for a near-term purchase. Over the long term though, stocks have always rebounded and rewarded the patient investor.