Depending on when you read this, we could be talking about what has already started (2015), or there may yet be a few days left in 2014.
If the little date on your computer tells you that it’s still December, that means we’re probably still in 2014 (unless your computer is severely outdated) … and a few last minute things you could do to reduce your tax bill for the year would be:
* Donate to your favorite charity (I’m sure you’re being flooded with EOY appeals)
* Pay your mortgage early so that you can take that deduction for this year
* Pay tuition now for 2015 classes that will start in the first quarter of next year. That way you’ll be able to use those costs to claim the American Opportunity Tax Credit. It could save you up to $2,500 on your tax bill, part of it refundable.
* Defer some income (if you’re able)
* Harvest investment losses, especially if you’re looking at a modified AGI higher than 200K
And, well, if we’re already in 2015 and you’re reading this, you can still open an IRA or contribute to an existing one by April 15th.
Regardless, the best thing you can do is make sure that you have a competent, caring professional by your side as you prepare your 2014 taxes. With all of the changes brought about with the Affordable Care Act … this year, of all years, should not be one in which you go it alone.
And since we’re talking like we’re now in 2015, let’s also talk about how we handle our finances. What I’ve put together here isn’t your normal “how to save money better” information. Let me know your thoughts …
“Real World” Personal Strategy Note
Assessing Money Well Spent in 2015
“One resolution I have made, and try always to keep, is this: To rise above the little things.” -John Burroughs
“Life planning” is where financial decisions ought to start.
Life planning conversations with our clients, while not as frequent as the day-to-day tax planning and related financial ones, are nevertheless the most meaningful and potentially life-changing discussions.
When trying to raise financially savvy children, there are three things they need to learn: how to earn money, how to save and invest money, and how to spend money.
You might think that people don’t need to learn how to spend money. They do it naturally. Unfortunately, the way they “naturally” spend money is mindless spending.
The problem with most spending is that our actions are not consistent with our values.
The poor buy things; their homes are cluttered with them. The middle class buy liabilities like second homes and boats, and then they are obliged to make payments on and maintain them for years.
In contrast, the rich buy investments that appreciate and pay them dividends and interest for decades.
The problem is not just that the poor and middle class are not wealthy. The problem is that the poor and middle class are often not using their money to satisfy their values.
There is a book by Elizabeth Dunn and Michael Norton (called The Science of Happier Spending) which chronicles the “research distinguishing spending that satisfies from that which disappoints.” The authors lay out five principles of spending that produce lasting dividends:
1. Experiences are more satisfying than stuff.
2. Abundance ultimately backfires. Making indulgences rarer rather than frequent makes them more satisfying.
3. Buying time is the best investment.
4. Using “reverse credit” (pay now–use later) imbues us with the pleasure of anticipation rather than the buzzkill of paying later for something already consumed.
5. Spending on others trumps spending on oneself.
This seems like a good starting place for judging money well spent.
If you were in charge of a group of people shipwrecked on an island, and you only had one doctor, you would “buy” his time in ways like having other people cook for him and keep his house in order, so as to free him from any duties other than doctoring, where he is the most valuable.
Many wealthy people are wealthy because their time is extremely valuable. If they are smart, they do not cook for themselves, or mow their own lawns or perhaps even drive themselves to work. They buy time by paying others to do those things for them, and as a consequence use their time in a more valuable way.
The same principle applies for anything that only you can do. You are the only person who can be a mom or dad to your children. Buying time to make those relationships happen is a great life-planning investment.
If you have children, print a copy of these five principles and discuss them at the dinner table. Such conversations are one of the ways we impart values to our children, and financial planning begins with moral and/or spiritual values.
Life goals may fall into one of several types, but since the course of your life is unique, the way you handle your money to help you in your calling will be tailored to you as well.
Aligning your money and your values isn’t an easy process. It is as difficult as aligning your eating and your health. And, of course, during this holiday season, we’re ALL feeling the disconnect there.
But this is what my team and I are here for. When you come to us for your planning this year, if you’re willing, let’s set a time to have a longer conversation about what you would like to do with your life. Because that’s really where everything comes together.
To your family’s financial peace in the new year …