If you own and operate an S corporation, it’s that time of year again when you decide how much salary to draw vs. profit distribution. Be aware, too low a salary and the IRS will be very interested in talking with you.
If you need some guidance, check out this web site http://www.smbiz.com/sbfaq020.html
Fleetwood Mac, in their 1976 song “Don’t Stop”, urged listeners not to stop “thinking about tomorrow” because it would soon be here. How does this relate to you? If you’re like most people, you can probably spend money without thinking about it, but you can’t save money without thinking about it. The truth is; saving isn’t a natural event. It must be planned.
Planning and budgeting require control. Financial planning involves looking into the future, facing financial reality and the sacrifices that it brings, and taking action. Financial restraint isn’t as much fun as spending with reckless abandon, but it’s a lot more fun than winding up broke.
Years ago, there was a commercial on TV where the actor would look seriously into the camera and say: we make money the old fashioned way, we earn it. He was speaking of a stockbrokerage company that successfully utilized that slogan for years. I mention this commercial because I believe we’re headed back to the old fashioned days, where a penny saved was a penny earned.
Prior to the recent stock market crash, our homes and investments were going up in value each year and in many cases, faster than many of us anticipated. That was good news for many, but it also came with consequences. Due to the rapid rise in net-worth, many people neglected or just simply forgot how to save money during these times. And if you ended up not saving and spending too much one year, cheap money was available in the form of refinancing your home mortgage. Those days are gone.
As we approach 2010, it’s amazing and scary to think how close the world came to another Great Depression. For my money, that was too close for comfort. Although the global economic recovery is still fragile, at least we’re recovering. With the New Year approaching, there are a new set of indicators to pay attention to. Top on that list is China. I’m not that concerned with China holding close to a trillion dollars in reserve, since selling dollars wholesale would certainly be mutually assured destruction for the U.S and China. What concerns me is U.S unemployment staying at high levels next year and the congress looking for scapegoats.
If we allow China to become the scapegoat, and this theme starts to catch on with members of Congress, we’re going to have problems. Next year, pay close attention to the debates being held in Congress and see if any anti-China legislation starts to gain momentum. Of course, China’s currency policy is manipulative and needs to be reformed. But telling one of your largest creditors what to do, well, that just isn’t going to work. Whether we like it or not, the Chinese finance minister is our lender in chief. How we allowed our country to get so deeply in debt and become a debtor nation instead of a creditor nation is a story that will be told for generations to come. But it is what it is, and right now, China has the upper hand.
From my perspective as a fee-only financial planner, investors seem confused about bond funds and fixed income investing in general. As the stock market continues on its upward path, please don’t lose sight of how important it is to maintain an asset allocation to bonds or bond mutual funds. To help you make sense of all this, here’s another link to some outstanding info from Vanguard.
Remember as well, being financial empowered means increasing your financial intelligence. Here’s your homework: http://www.vanguard.com/jumppage/bond/
According to the Investment Company Institute, investors poured $220 billion into bond funds during the first eight months of 2009, compared with just $27 billion in 2008.
The New York Times has a great article on money questions to discuss prior to getting married. For those of you that are married but find it challenging to discuss the topic of money, or have not yet done any financial planning together - there’s something here for you as well. Here’s the link to the article:
OK - it stinks that we lost the 2016 Olympics to Brazil, but at least from an investment perspective, there may be a silver lining here after all.
2010 may prove to be a great time for boomers to create a tax-free income stream for retirement, thanks to the opportunity to complete a ROTH conversion without income limits. 57% of high income boomers are not aware that income limitations on conversions will be eliminated in 2010.
To learn more about the benefits of ROTH IRA conversion, please call or email to schedule an appointment.
The financial and emotional implications of a life crisis affect women more than men, according to new research findings from AARP Financial Inc. A survey of 600 men and 600 women age 40-79 looked at four life crises; divorce, death of a spouse, long-term job loss, and serious illness or disability. In all four instances, women struggled more than men.
Both men and women rarely seek professional financial advice in a crisis, rather, they rely more often on friends and family. But women who do seek professional advice usually feel well served, more so than men.