Savvy Ladies Community

This weekend, my family and I spent some time browsing plasma TVs at Best Buy. Strolling past walls of pulsating light and sharp-as-a-knife imagery, I was amazed at how much prices have dropped lately. In line, I was even more amazed at the number of people who purchased extended warranties for their electronics. From a statistical standpoint, it makes little sense. The vast majority of such products malfunction either early on - while still under the manufacturer’s warranty - or way down the road, long after the extended warranty has expired. In this economy, few of us can afford to waste money. So do yourself a favor and decline these offers.

While we’re on the topic of money wasters, I would like to point out another one: gym memberships. I’m not saying you shouldn’t work out! Few things – if any – are more important than good health. But not only do many people pay more than they need to for their memberships (you can use sites such as globalfit.com to compare prices), but many of us don’t need the gym to stay in shape, at least not all the time. This time of the year, why not go for a run or bike ride in the park? The fresh air and change of scenery are free bonuses! I work out at 5:30 am four times a week and love being outside. It is relaxing and also super effective at helping me drop my post pregnancy baby weight.

The third major money waster on my list is overdraft fees. If you are unable to keep a cushion of a couple of hundred dollars in your account or if your balance bounces all over the place, consider signing up for overdraft protection. It typically costs $5-$10 per year, and with overdraft fees starting at $30 per transaction, you may end up saving hundreds.

Your Financial Fitness Checkup

Leaving the organic produce store yesterday, a flier on the revolving glass door caught my eye. It was entitled “HEALTH CHECKUP: Do You Have the Supplement Basics Covered?”, and listed five types of supplements: multivitamins, enzymes, probiotics, fatty acids, and green vegetables, as the foundations for good health. Not only is it nice to know that I take all the measures necessary to ensure my physical well-being – this also translates very well to financial health. Do you have the personal finance basics covered?

1. Do you make more than you spend? Are you able to pay all your bills in full, on time, or do you need to make more and/or spend less?
2. Do you have an emergency fund? Do you have enough money to cover six months worth of expenses, and is this money easily accessible?
3. Are you in the black? Do you pay off your credit cards in full every month? If not, draft a plan to get rid of those balances!
4. Have you thought about retirement? Do you have a 401(k), Roth IRA or similar, and do you contribute to it regularly?
5. Have you protected yourself against disaster? Do you have the insurance coverage you need, including medical, disability and homeowner’s insurance?

Yes on all? Congratulations! Chances are you’re in great financial shape!

Stacy Francis, Savvy Ladies

www.savvyladies.com

Why You Need a Roth IRA

I met with a new client last week; a woman in her early thirties eager to get started on her nest egg. A discussion of her financial goals and priorities revealed that she hoped the not-so-distant future would bring her not only a home of her own, but a few children as well. When I recommended a Roth IRA, she was all frowns. What's the point? she wondered.

This is such a common question, it deserves a blog of its own. After all, why would you make your contributions on an after-tax basis, when you could just as easily open a traditional IRA and cash in on your tax breaks right away? In this day and age, what could possibly beat the magic of instant gratification?

Well . . .

1. With a traditional IRA, the withdrawals you make in your golden years are taxable, at your current rate. With a Roth IRA, once you’ve made your contributions, you never pay tax on the capital again (provided, of course, that you play by the rules). Since the amount you'll withdraw from the account will be much larger than the amount you put into the Roth, in most cases, your total tax bill will be considerably smaller with a Roth IRA. Remember? You don't retire off the money you set aside - but off the money you make off the money you set aside.
2. If, like my client, you are aching to buy a home and start a family, note that you can withdraw money from a Roth IRA without becoming subject to the penalty tax, to pay for a first home or college tuition for yourself, your spouse or your children. No such exceptions apply for traditional IRAs.
3. A Roth IRA is typically more beneficial for your heirs, should you kick the bucket.

Note, however, that there are strict income limits for contributions to Roth IRAs. Singles needs to make between $5,000 and $101,000 per year (phase-out between $101,000 and $116,000), while married couples must have an annual income of less than $159,000 (phase-out between $159,000 and $169,000). As long as you fulfill this requirement, chances are, a Roth IRA is a great option for you.

Stacy Francis

, Savvy Ladies

www.savvyladies.com

The Scoop on IRAs and Tax Losses

My friend who is a stockbroker wrote heaps of sell tickets for his clients back in December of last year. This may seem controversial, considering that finance gurus always advise us to sell high and buy low and it has been a long, long time since stocks traded as low as they did at the time. However, selling stocks in a down market has one huge advantage: you can deduct the losses from your taxable income. Especially thinly traded, volatile stocks that have performed poorly throughout the year tend to be hammered to the ground in December, only to rebound in January as investors with a long-term, bullish perspective pick them back up again.

Taking advantage of these losses in your regular, taxable accounts is a no-brainer. But at times, it can pay off to take tax losses in your retirement accounts as well.

Before you read any further, take note that you can never deduct losses in traditional IRAs or 401(k)s. The reason for this is simple: you already made a deduction when you put the money in the account!

However, if you have a Roth or traditional nondeductible IRA, you may be able save a few tax dollars, as long as your cost basis is higher than your current account value. Unfortunately, this type of transaction has several drawbacks.

First of all, in order to deduct a loss, you need to liquidate the entire account. When you want to build it back up again, all the usual limits and restrictions will apply to you. Furthermore, losses in these accounts cannot be deducted directly from your taxable income – they can only be used as parts of an itemized deduction. Therefore, they are much less beneficial for this purpose than losses in regular, taxable accounts.

To sum up, taking a tax loss in your Roth or traditional nondeductible IRA may make sense if you have accrued only a tiny balance and you itemize. If you have a large amount of money saved up, you don’t itemize, or your account is either a 401(k) or a traditional IRA, don’t bother.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Spring Cleanout Your Investment Portfolio

I love this time of the year! Trees painted in that fresh, new green, baby birds chirping in the trees, and a sense of excitement in the air. I spent last Saturday preparing my closet for spring and summer: warm, heavy jackets making room for light summer coats, sweaters yielding for shorts and dresses, and boots replaced by cute sandals and heels. Of course, I also had the opportunity to donate the old items that no longer fit (size or fashion wise) to a lovely charity, and to pick up a few new ones – you know, the kind that gives your entire closet a facelift and makes every outfit feel brand new.

For those who haven’t yet gotten around to it, this is the time to clean out your investment portfolio as well. Schedule an appointment with your financial planner to discuss the following:

1. Is all or a portion of your capital invested in a fund, industry, market or company you no longer believe in? If so, it may be time to toss! The same applies if a fund has gone through a shift in management or style that you feel is for the worse. You can access this information in annual reports – or through google!

2. Monitor the Morningstar ratings for your funds, albeit not religiously. The score (one through five) will tell you how well a fund is doing compared to similar funds and relevant indexes – not how good of an investment it is overall. This is why it is crucial to do your own research as well. A two star-rated fund in an upcoming industry may be a better option than a four-rated one invested in a troubled sector. And with this in mind . . .

3. Have any new industries, companies, funds or markets sparked your interest lately? Have you done your research and feel fairly certain they’ll do well in the future? You may want to send some of your dollars in that direction!

4. Do you need to be more conservative, or could this be an opportunity for you to speculate a little? Your investment strategy should change not only with age (typically, the older you get, the more conservative it should be), but also with new market circumstances. If you are young and have plenty of time still, you may want to take advantage of this opportunity to pick up stocks and mutual funds invested in stocks for less.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Money Myths That Hold You Back

Last week, I had the opportunity to help an extremely wealthy woman sort out her finances. Now, my favorite part about this is not the fact that she is one of the largest clients I have ever signed, but that she is an interior designer. She personifies evidence that the money myth holding so many people back from their true potential – that the key to financial success is the right occupation – is not true. Indeed, many lawyers and doctors make a decent living. But so do many musicians, caterers, animal chiropractors, and contractors. With this in mind, allow me to sort out four other money myths that hold people back.

1. Wealth is the result of hard work. I’m amazed that this myth has survived for so long. Just look at all the people who, after a lifetime of hard work, are now struggling to retire. If wealth were truly the result of only hard work, wouldn’t they be loaded? I am not saying that you should quit your job and meditate about wealth as the answer, just that making money is about much more than hard work.

2. Making money is boring. I would beg to differ. Success and passion go hand in hand. If you love what you do, you will prosper. If you couldn’t care less, you apathy will show in the fruits (or lack thereof) of your labor.

3. Money is like fossil fuels; there is only so much of it in the world. Therefore, if your wallet is stuffed, someone else’s must be empty and you should feel bad. Out of all the myths, this may be the most destructive. Devotees tend to resent rich people, and this stops them from getting ahead because if they did, they would have to resent themselves. Sounds silly but many people believe this.

4. Finally, many people hold on to a false belief that money cannot make you happy. Statistics, however, point to the contrary. Age and gender make very little difference, but people who make good money are significantly happier than those who don’t.

Stacy Francis, Savvy Ladies

www.savvyladies.com

5 Things You Should Know Before You Buy a Stock or Fund

A friend of mine is an aspiring author, and eventually wants to leave her corporate job. Over bouillabaisse and freshly baked baguettes the other night, she announced that she just sold her first short story, to an Ezine. All smiles, she explained what an important step this is for her writing career since, as she put it, now she’s googlable. This very versatile new verb got me thinking about the many, many ways the Internet helps investors. Just imagine the amount of information now at our fingertips; information to which, as little as fifteen or so years ago, investors had very limited access. Below are a few googlables to consider before you buy a stock or fund.

1. Essence. What does the company (or companies, in case of a fund) do? My general advice is that if you don’t understand the business, you shouldn’t bet your money on it. To stomach the ups and downs in the markets (especially today), you have to feel good about your investment.

2. Sales. Are whatever products and/or services the company produces actually selling? If they are gathering dust in a warehouse, chances are your money will, too.

3. Cost control. A $10,000,000 golf retreat for the executive staff is hardly effective use of your capital. Put it to work elsewhere.

4. Debt. People aren’t the only ones who suffer when overwhelmed with debt. Find the leverage ratio (calculated as total assets divided by shareholder equity) for the company (or companies) you’re considering. If it is higher than 5, reconsider.

5. Bad news. Nothing spreads faster than bad news. If there’s anything fishy going on, chances are somewhere on the World Wide Web, someone picked up on it.

Stacy Francis, Savvy Ladies

www.savvyladies.com

The Savvy Guide to Coupons

Think coupons spell cheap and cheesy? So did I, until a couple of weeks ago the woman in front of me in line at the grocery store used a whopping sixteen of them, saving over thirty dollars. This, with hardly any effort! I just had to ask for her best coupon shopping advice. If you have yet to try this way of saving, or if you’d like to get more out of your clippings, read on!

 

1. The Internet is not just for shopping and email – it’s for saving as well. Check out sites such as hotcoupons.com, valupage.com, and coolsavings.com.
2. Your Sunday paper, too, can be a wonderful resource. Allocate a compartment in your purse or wallet to this purpose, clip, and save!
3. Many stores have fliers with coupons at the entrance. If this is true for yours, don’t miss out on this golden opportunity. You can combine these savings with the ones already in your purse. I now check the flyer at Whole Foods every time we shop. We save a minimum of $10 on every grocery visit.
4. If you can’t find coupons for the brand you like, try giving the company a call. Many companies are happy to send valued customer coupons – you just have to ask.

I am taking the first, staggering steps toward becoming a coupon customer, using them mainly for restaurants and travel. What about you?

 

Stacy Francis, Savvy Ladies

www.savvyladies.com

5 Quick Fixes for Your FICO Score

An old friend - a real estate agent in the Midwest sent me an email this morning with a topic she suggested I post in my blog. With real estate prices at record lows, many aspiring homeowners are looking her up. Many fulfill both the down payment and income requirements for a mortgage. Unfortunately, they tend to underestimate the extent to which the credit markets have changed over the past couple of years. These days, there’s no way around it: your credit score must be sky high. Wanting nothing more than for her clients to have their dream homes, she has put together a list of quick lifts for that FICO score.

1. Pay down balances. A main ingredient in the credit score formula, the size of your balances really does matter. Pay them down – or even better, off.

2. Protest unfair information. If you have an entry on your credit report that shouldn’t be there (honestly, now), know that you can dispute it. If you submit complaints to the company that posted it as well as the credit-reporting agency, they will investigate and take it off, leaving your record a whole lot cleaner.

3. Ask for help. If you’ve been a loyal customer for years and normally make your payments on time, chances are, if you talk to customer service, they will disregard that one time you forgot to pay your bill because you were on your honeymoon. Ask politely – and thou shall receive.

4. Don’t neglect the oldies. Another important factor in the credit score formula is how long your accounts have been open. So even if the Victoria’s Secret card you applied for when you were in college doesn’t have the most useful perks, use it once in a while for a credit score boost.

5. Make your payments on time. It seems simple, yet so many people fail on this count. If you have a hard time remembering your payments, set up a reminder.

Stacy Francis, Savvy Ladies

www.savvyladies.com

The Fear Factor: The True Cost of Emotion-Based Investment Decisions

I am very intuitive, said a new client over raw food downtown yesterday. Thank goodness I can finally eat Sushi again. While I was pregnant this food was strictly off limits. Anyways, my client told me that she always listens to her gut when determining when to buy and sell. It has never been wrong in any other aspect of her life, yet she keeps losing money. Any idea why this could be?

 

I do have an idea, and I think it’s important enough to mention to the rest of you as well. The reason following her gut in investment decisions is getting my new client nowhere is that gut feeling is a biological function designed to keep you safe. So when things start to get shaky in the markets, it will tell you to pull out. When indexes start to head north again and others around you start to make money, it will pick up on their sense of security and conclude that it is safe for you to re-enter.

 

In essence, you will end up buying high and selling low – one of the worst investment strategies imaginable. Statistics show that it is not unusual for investors who move in and out of the markets to underperform major indexes with 1.5 points.

 

I’m not saying you should ignore your gut, because it is useful in so many other aspects of life. Sometimes, it can be a lifesaver! But when it comes to investing, it’s all about the rational. Draft a long-term strategy, stick to it, and - with the exception of your annual or bi-annual portfolio review - leave your money alone. You are much better off using that gut feeling to improve other aspects of your life.

 

 

Stacy Francis, Savvy Ladies

www.savvyladies.com