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Graduation Gifts: What Should You Do With Your Money?

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‘Tis the Season!

Well, not that season, but another highly anticipated one: graduation season.  Hundreds of thousands of college and high school graduates are donning caps and gowns,  shaking hands, having parties, and most likely cashing checks.  The real question is what to do with all of this money?

Let’s break our discussion into two categories: high school graduates and college graduates.

High School Graduates

We’ve talked about it periodically: most kids aren’t taught anything about how to handle money and for some, graduation gifts can be their first experience with large amounts of cash. If there’s not an exact plan, it can blow away faster than the autumn leaves.  This is job number one for parents: sit down with your kids and discuss what the plan is with the graduation money.  Here are the top 3 things high school graduates can and should do before cashing a single check.

English: PJPII graduates entering local church...

High school graduates entering local church for graduation mass, May 2009 (Photo credit: Wikipedia)

 

  1. Establish the maximum dollar amount of your graduation gifts that you’ll allow yourself (or your kid) to spend on fun.  I don’t have any problem with high school graduates blowing a certain amount.  I mean, it is a joyous occasion and high school graduations should have a certain amount of indulgence.  But, just like anything finance related, you have to go in with the end in mind.  Failing to plan is planning to fail.
  2. Decide what’s going to be set aside to be spent during the first semester of college.  Assuming you’re heading to college in the fall, no matter what you think you’ll need from graduation gifts, you’ll want more.  Accept and embrace the reality: college will cost more than you think.  If you can set aside a couple hundred dollars today for those rainy October weekends far from home, you’ll feel a lot less guilty about skipping the meal plan and ordering a pizza for your roommates.
  3. Take at least 1/3 and either invest it or give it away.  Those two options sound like opposites, but they require similar mental acuity.  We only give things away when we have an abundance mentality – we only invest if we have a strong faith in the future.  Take one or two hours and pick a solid blue chip company, set up an online brokerage account, buy some stock and don’t touch it for 30 years.  You’ll thank me later.  Oh, and don’t forget to reinvest all your dividends from your graduation gifts! You’ll want those growing, too!

Don’t let this great opportunity for teaching kids about money slip by.  There are only a few “found money” times throughout one’s life.  Use graduation gifts wisely.  Any high school graduate should be able to take this money and use it to get ahead in life.

Next week we’ll talk about what college graduates should do with their “found” money…stay tuned!

 

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How Did You Golf Today? Ask Me About My Portfolio….

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If you’re a subscriber to our podcast, then you know one of the things that I really enjoy is golfing – so it’s not uncommon for people to ask (even if they’re somewhat kidding) “So, how did you golf today?”  (Truth be told – pretty bad.  I’m usually a mid-80’s golfer, but today I shot a 93.  Boo.)

To me, answering the “how’d you golf today” is the same as “What did the market do today?”  I don’t like answering either.  Trust me – when I golf well, or if the market did exceptionally well today, I’ll let you know.

Golfing and investing are very similar; they both require similar skill sets and disciplines.  Last week  discussed how you have personal responsibility with your investing plan

– today let’s talk about what to do when you hit a wayward tee shot.

Sometimes even with the best swing, the ball just slices ever-so-gently into the rough (or as was my case today, the bunker).  How do you respond?  Well, there are two ways: first, you can throw your club, swear at the wind (or the tee box, or your teammate, or whatever) or you can focus on what you need to do to get the ball back in play.

 

One of the first things I learned about golf, after I gave up the swearing and became  semi-serious about it, was to always try to get the ball back in play.  If you’re in the bunker, goal #1 is to not have another bunker shot.  If you’re in the rough, goal #1 is to get it out of the rough.
Unless you’re pro golfer Bubba Watson and can snap-hook a 7 iron from 185 yards in a playoff hole in the Masters, goal #1 is just to get the ball back in play.Investing and financial planning follow the same logic.Sometimes you hit a crappy tee shot (read: make a bad initial investment, have some external

 

force impact you financially, etc.) and you can respond only one of two ways:  you can throw your statement, complain about how your broker screwed you, whine about how the dude on CNBC lied, or:

you can get back in play.

Sometimes that means you have to punch out of the rough under a tree branch; sometimes you have to layup to the 100 yard marker; either way, don’t get upset – just get back in play.

When you make a poor investment decision that means:

1) Don’t worry first about assigning blame. Worry about correcting the problem.

2) Stay calm. Getting upset isn’t going to help you create better returns later.

3) Once you’ve regrouped, THEN determine what went wrong. Was your broker the problem? Did you not analyze the investment correctly?

You’ll invest much better following these simple steps that I learned from playing golf.

Facebook and Morgan Stanley: Who is To Blame?

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Whose responsibility is it when your investment in Facebook or Morgan Stanley declines in value? The company? A broker?

Certainly you’re not to blame.

The current proliferation of lawsuits against these companies makes me ask a straightforward question. Should there be lawsuits against Facebook and Morgan Stanley? (See these articles for more information if you don’t know what I’m talking about: Forbes: Facebook Lawsuits Piling Up.)

I’m reminded of society’s lack of personal responsibility each and every time I drive up the highway to see my mom.  I haven’t added all the advertisements up, but there is a certain personal injury lawyer in our town who advertises everywhere.  I don’t know this lawyer intimately, but my wife works in the same office building and sees the people who come in and out of the front door.  There are all sorts of people trying to sue for anything under the sun.  Instead of trying to take over the world, they’ll just take it from someone else, because somehow, they’re “owed” something.

One of my favorite books is The Road Less Traveled by M. Scott Peck, M.D.  That book contains my favorite quote from any book:

We cannot solve life’s problems except by solving them. This statement may seem idiotically tautological or self-evident, yet it is seemingly beyond the comprehension of much of the human race. This is because we must accept responsibility for a problem before we can solve it. We cannot solve a problem by saying “It’s not my problem.” We cannot solve a problem by hoping that someone else will solve it for us. I can solve a problem only when I say “This is my problem and it’s up to me to solve it.”  But many, so many, seek to avoid the pain of their problems by saying to themselves: “This problem was caused me by other people, or social circumstances beyond my control, and therefore it is up to other people or society to solve this problem for me. It is not really my personal problem.”

This is as true in the investment world as anywhere. As an investor, you must accept responsibility for your own investing decisions.  You cannot blame others for your decisions (or indecisions).  You won’t help your cause with a “I’m mad I made a bad decision in investing so I wanna sue everyone” mentality.  Recent lawsuits against Facebook and Morgan Stanley make me crazy – I don’t believe for a second that if some magical prospectus would’ve fallen from the sky that all these people wouldn’t have bought Facebook stock.  There’s all this talk about how Morgan Stanley screwed everyone and how Facebook lied — why didn’t these people do their own research?  Take some personal responsibility!  I’m pretty sure that had Facebook stock gone from $38 to $75 in one day, Morgan Stanley would not have called all the new shareholders and said “Oops, we priced this incorrectly so we need to sue you to find a more correct price.”

As an investor, you and you alone are responsible for the actions and outcomes of your investing decisions.  Whether you have an advisor, a consultant, or are a DIY’er, remember one thing: it’s your money.

Be accountable for it.

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Oops…I Forgot to File My Taxes

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Whew!  You’ve filed your taxes…or did you?

Most of America now have the 2011 tax year “in the books” so-to-speak…but what happens if you…ahem…’forgot’ to file?  What should you do?

Extensions

First of all, let me exclude all those who, like me,  filed an extension.  If you filed an extension, your taxes are due no later than October 15, 2012, but the tax bill (any money still owed to the government) was due yesterday.  An extension to file is just that: an extension to file, not to pay.  If you filed an extension and didn’t pay, but think you may owe money, it’s best to pay as soon as possible to avoid more penalties.

Get Moving!

What happens if you just didn’t file?  You didn’t file an extension, you didn’t file anything. What now?  Most professionals would recommend that you get filing done as soon as possible.  If nothing else, print out form 4868 and file for an extension.

Five Steps to File Your Taxes Quickly

Step 1:  Determine the reason you didn’t file.  Was it because you didn’t receive a form you needed?  Or, was it due to laziness?  Perhaps apprenshension?  Do you owe money and don’t know what to do?  Acknowledge why it happened and move on.  If you were lazy, get out your calendar and schedule a couple hours to work on them.  If you’re scared of the taxes you owe, work on filing the appropriate tax forms first, then worry about the bill.

Step 2:  Call your accountant, CPA, or other tax preparer and get in their schedule for when they return from vacation.  It’s likely they’re headed out of town to enjoy a much-needed vacation, but they have plenty of time available in May.  Call today and get your appointment scheduled.  What about doing them yourself?  Listen: You’ve had 4 months to get them done on your own.  Acknowledge that you won’t do it if you have 400 months and hire someone.

Step 3:  Set aside a 30-90 minutes to gather your tax-related documents and throw them in an envelope for your tax meeting.  Don’t think about it – just put stuff in the envelope.  Accountants will have more time to spend with you after they get back in May.  Don’t know if you should include that form?  Yes, you should.

Step 4:  Make sure you attend your tax appointment.  I know this sounds obvious, but hey, it’s been since January and you haven’t got them done.  You’re not the best time manager.  Commit to attending this meeting.

Step 5:  Begin 2012’s tax planning now.  Go to Office Max or Staples and buy a box of manila envelopes.  Every week, go through your paperwork and put the necessary receipts in this month’s envelope.  By the time taxes roll around next winter, you’ll be 90% done.

Remember, it’s a criminal offense to not file your taxes.  Not being able to pay them is civil.  Don’t be a criminal.

Outright Review

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We’ve blogged about different account and finance aggregation tools before, but we came across a new one that we thought we should share.  Outright.com is an “aggregator” type site, just like some of the more popular personal finance ones, however, their focus is mainly on small business owners who are looking for free online accounting software.  Here are a couple of relevant notes:

One of the major benefits is not having to type things into Quickbooks or another software program.  Outright downloads all your transaction data making it easy for you to do your own accounting.  No more paying hundreds of dollars for a bookkeeper!

Another nice feature is the reporting.  In one or two clicks, you can view your entire firm’s P&L, Balance Sheet or any other financial report.  In just seconds, you can get an accurate and up-to-date snapshot of exactly where your money is and where it’s been going.

The biggest benefit for small business owners comes around tax time.  Most people think taxes are due only once per year, but we business owners know the truth!  The tax-man comes four times a year – and preparing and planning for his arrival is quite time consuming.  Using Outright makes that less painful.

Overall, Outright.com is worth taking a look at.  They have a free trial so go give ’em a try!

Unclaimed Money – Your Own Personal Treasure Hunt

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As I was rummaging through my golf gear (stored in the basement for the long-harsh winter that never materialized) I went through all the pockets…and guess what?  I found…drum roll please…a $50 dollar bill!!!!!  My wife and kids came running.

They must’ve thought I’d lost an eye the way I was screaming.

Have you ever found money when you didn’t expect it?  Isn’t it a wonderful experience?

Now, since we’re all about honesty over here in Average Joe’s dungeon (yes, sir.  This gruel tastes wonderful.  May I have another?), I must confess I treat all found money as completely discretionary.

Here’s the rule: I can spend every penny without even the slightest ounce of guilt.

If you find money, what do you do?

So, if you want to find money, doesn’t it make sense to search places we’d likely have left some cash?

The first place you should look for cash right now

First, enter the following phrase into Google: “State of <insert your state> unclaimed property”

That search will turn up your state’s unclaimed property list – which I encourage everyone to check  not just for your state, but for every state you’ve ever lived in.

You’ll be amazed.

Each state has an unclaimed money and property list and if you’ve ever left money somewhere, that’s where it’ll show up.  I know what you’re thinking: I would never misplace a bank account.  I know.

Here’s the thing: you may be entitled to a refund of some kind…maybe you paid home owner’s insurance premiums and they were too high.  Trust me.  I’m willing to bet my next bowl of gruel on the fact that someone who reads this and follows my directions will find money. It’d bring a tear to my eye if you shared it with me.

A couple years ago, I did the search for unclaimed money in our state and looked up relatives – and I was surprised when Aunt Donna’s name came up.  I called her and asked if she ever did business with ABC Insurance Co., to which she replied that she had.  I told her how to get the form to fill out and encouraged her to mail in the request form.  Her response?  “Ah, it’s probably not that much…so I don’t know…”  WHAT THE @#$@?  THIS IS FREE MONEY!

I would understand if the process took 6 hours, but in our state, it was a simple form and a stamp.  Finally, I convinced her to do it…

Her reward? $418. It would still be unclaimed money today if she hadn’t looked.

Not a bad return for seven minutes of exhausting work stamping an envelope and completing a form.

The second stop on your treasure hunt

Let’s visit the United States Treasury department. Specifically, you should search the database of savings bonds.

Savings bonds aren’t nearly as popular as they used to be, partly because of their paltry rate of return, but that doesn’t mean that Great Aunt Betsie didn’t have a whole lot of ’em…here’s where you can check: Treasury Hunt Website.

When you visit the site, type your SSN or your Great Aunt Betsie’s and it will inform you if that SSN has any savings bonds registered under it.

Again, I know what you’re thinking: I’d never lose a savings bond.

Yes, you would.

You especially would if you were all of 11 days old when that well-meaning Aunt picked up that whopping $25 bond as a gift for you at the local Second National Bank.

Do yourself a favor and check the site for unclaimed money.  Then tell everyone you know to check.

Because, get this: there are $16.5 billion worth of unclaimed bonds out there…that don’t even earn interest any more.  That’s $16,500,000,000 reasons to check it out.

Any success stories?  Post ’em in comments…if no one finds any money, I’ll donate my next bowl of gruel to the first person who wants it…

 

(Photo Credit: ExpertInfantry, Flickr)

(About the photo….BAGRAM AIRFIELD, Afghanistan – U.S. Army Sgt. Benjamin Rudy, a Columbia, S.C. native, looks at a map that will help him find buried treasure while serving as a force protection non-commissioned officer for Combined Joint Task Force-82, at Bagram Airfield, Afghanistan. The mug and the map were sent to him as gifts from his kids, Logan, six, and Taylor, four, who believe he’s on a pirate ship to find treasures for them. His pirate character is a way Rudy bonds with his kids during long periods of separation.)

 

Facebook and Zynga IPOs – Should You Buy?

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We’ve all felt the magnetic pull of an IPO. The roaring 90’s come back to us. Why am I a blogger? I could invest in an IPO and be knee-deep in a Carribean island swimming pool holding a margarita the size of my face. Then again, I wouldn’t hold the margarita. I’d hire someone else to hold it.

So…the upcoming Facebook and Zynga IPOs – Should You Get In or Stay Out?

IPOs (initial public offering) seem to have lost a little of their luster over the past decade or so, but nevertheless everyone still turns their heads when a “big name” walks by and announces an IPO. Earlier this year it was the Groupon IPO, last year it was the “new” General Motors.

When a company announces their IPO, many people want “in” – it’s easy to see why: who among us hasn’t asked (at least to themselves, if not aloud) I wonder what would’ve happened if…

• I would’ve bought Microsoft in the 1980s;
• I would’ve bought Apple when Steve Jobs came back on board;
• I would’ve bought Google at $85/share…

As a financial advisor, my goal is to make sure my clients don’t “should” all over themselves.

(OK sidebar: If you didn’t laugh at that last sentence, you really need to read it out loud. Go ahead…get it? “Should” on one’s self? I can’t believe my comedy career never took off…okay….back to our regularly scheduled programming)

It tempts you because it seems like easy money. Who doesn’t like to live in fantasy land for a few minutes each day? My fantasy investment purchase? Greek debt insurance 2 years ago. That’s some serious jenga. But I digress.

So, here’s the deal with IPOs and why they’re not your best option:

1. Unless you have an “in” (think: your brother works for Facebook) you’re not gonna get any IPO shares

This means that if you try to buy into the Facebook IPO the day it opens, you won’t receive the IPO price (which is what everyone will talk about on CNBC). You’ll purchase your shares at a different–and often much higher–cost.

2. They don’t usually make money – at least not right away:

Image representing Zynga as depicted in CrunchBase

Image via CrunchBase

Like visions of gold, we conveniently remember IPO “winners” like Google or Amazon. We block out the long, tired stack of losers. Remember Pets.com? How about Vonage…they aren’t dead, but that IPO was a mess. eToys? Amazon.com, a mammoth stock by today’s standards, IPO’d in mid-1997…and didn’t make any percentage gains for several months. Google’s IPO occurred in 2004. The stock experienced a big spike, and then lay flat for 6 months. Often, IPOs don’t pay off for years, even when they’re winners like Google or Amazon.

3. The people who make the real money? The CEO, executive team and investment bankers. This is a big cha ching! event for them.

The Blackstone Group, a private equity and asset management firm, announced in 2007 announced they were going public. The issue drew so much attention that no one really paid any attention to the prospectus.

Why does it matter?

Well, it turns out that The Blackstone Group IPO launch only included “part” of their business (not that part that made money, mind you). After all the shares were gobbled up and the CEO and investment bankers off-loaded their shares (the CEO made $2.6 Billion–lovin’ the capital “B”), any gullible shareholders were stuck with a 42% loss in the first 12 months.  Here’s a great book discussing the lengths at which dirty CEO’s will go to cover their fraud.

Here’s our thoughts:

If you want to own a “cool new shiny Zynga IPO”, but don’t want to do the homework involved with reading the prospectus or making friends with an employee to get the “insider” price, buy a mutual fund in that same space. If it’s as awesome as you think, the fund manager will buy some (probably at the actual Zynga IPO price) and you’ll own some by proxy. If it’s a sham, the fund manager, who has a thousand times more resources than you, will probably pass – allowing you the easy way to decide whether to pass as well.

Plus, really, do you think it’s a good idea to put every dollar you own in Zynga shares–even if you could? What’s the best that could happen? Your money could double? Triple?

Sure. But what’s the risk?

We’re curious about your opinion. What do you think about the Facebook or Zynga IPO? Are you buying the hype?

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Two Simple Steps to Tax Savings

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What???  What do you mean it’s tax time?  That’s not until January when my W2’s come in the mail, right?

My readers are very, very smart, but on this topic, if you were thinking the above, you’re in for a wonderful surprise.

Not as wonderful as a surprise flash mob at Walmart, but still, pretty awesome.

Tax season starts today. Happy tax season! I know. And you forgot to dress up for it.

Between today and the moment the ball drops in Times Square on 01/01/12 at 12:00 a.m. is the only time you have to make changes to your tax situation.  Sadly, most people begin planning for taxes when there is absolutely nothing you can do to create more tax opportunities.

Well, you’re in luck.

I’m going to bequeath unto you some tax-saving ideas you can easily implement over the next 60 days.

It could save you $725 or more.  Cool?  Let’s begin.

Remember, it’s about execution – not strategy.  You have actually DO something…(I know, I know….I’m a task-master).

Strategy #1 – The easiest way to chop $600 off your tax bill

If you have any investments outside your retirement plan, you’ve seen their values rollercoaster over the last few weeks/months as the market’s been pretty range-bound.  If you have a stock or fund you like, but it’s performance leaves a bit to be desired, consider selling it.  Wait 31 days and then buy it back.  If you have a loss, (up to $3,000 per year) you can claim it on your taxes (first against gains, then you can just use it as a deduction).

Neat, huh?  I love saving money.

If you’re not sure how this works, here’s an example from your favorite blogger:

You bought 500 shares of Ford stock (ticker: F) at about $20/share earlier this year.  That means you invested about $10,000 (I’m crazy about math!).  Today, Ford is trading around $11/share.

You believe in the company so you still want to own it long-term.  Fine.

Here’s what you do:

Sell your 500 shares today @ $11/share.  You just realized a $4,500 loss for tax purposes.  In 31 days, you’ll buy it back.  In the meantime, so you don’t miss out on a potential run-up on Ford shares while you’re out, go buy CARZ, an Exchange Traded Fund that focuses on the auto industry.  When the 31 days are up, sell CARZ and re-buy F.

Congrats.  You just saved yourself ~$600 on your taxes (assuming you pay around 25% tax rate).

Strategy #2 – The most-used deduction plus an extra 8%

On average, the most used tax-deduction is the mortgage interest deduction.  So, how about getting another 8%?

Here’s how:

When’s your mortgage payment due?  If you’re like me, it’s due on the first of the month.  If you use automatic payments, this bill is probably deducted from your checking account each month on the first.

Call your mortgage company and cancel the automatic deduction.

Instead, go online on 12/31/2011 and make your 01/01/2012 payment.  Check with your mortgage servicer to make sure it doesn’t need to arrive even earlier to post by 12/31/11.

Here’s what this five minute exercise created:

Let’s assume your payment is $1,000/mo of which $500 is interest (the deductible part).  Under a normal year, you would have $6,000 of mortgage interest to write off ($500 x 12 mo – $6,000).  By making your January payment early, you added another $500 interest payment.  So now you have $6,500 (or 8% more than $6,000) worth of deductions.  Again, assuming you’re paying around 25% taxes, you just saved another $125 in taxes due.

So, all-in-all, Average Joe just made you $725.

You’re welcome.  Don’t go wasting it on doughnuts.

Have a favorite tax-time tip to share?  Comments are open for our tax-time show-and-tell below!