Monthly Archives: June 2012

Women, Money & The Pay Gap

Q:  My husband and I often argue over whether or not men or women are worse than one another when it comes to saving and investing.  What’s your take on this?

A:   Men and women both have it bad when it comes to spending money.  Women will go on a shopping extravaganza and come back with bags of stuff.  Men will just blow a few thousand dollars on that new motorcycle, Jet Ski, boat; you name it and not think twice.  Yet, when it comes to investing, women often face significant inequalities when it comes to finances: they usually earn less, have shorter careers, and live longer than men.

According to the 2012 study The Simple Truth About The Gender Pay Gap, released by the American Association of University Women, the average female graduate just one year out of college working full time will earn only 80% as much as their male counterparts.  According to the same study, 10 years after graduation 23% of the women who had children were out of the work force, while 17% worked part-time. Those same stats for men with children were only 1% and 2%, respectively.

According to the U.S. Department of Health and Human Services, women in the U.S. have a life expectancy of 80 years from birth, compared with fewer than 75 for men. That means women must save for an average of at least five years longer than men. But it also means five more years of investing – time that can be used to close the gap.

Reversing the Trend

While all the inequalities of the working world can’t be erased over night, there are some things that can be done.  The first is to wake up and realize that you have to do something.  Barbara Stanny, author of several books on finance for women, including Prince Charming Isn’t Coming: How Women Get Smart About Money and Secrets of Six-Figure Women offers the following advice:

“Our attitudes to money are inherited from our parents,” she says. “My father honestly believed he did not want me to worry about money. But I think he knew on some level that it was time for me to grow up.” Stanny believes strongly that taking financial responsibility is a rite of passage into adulthood. “Women, even young women, still have this dependency or believe that someone will take care of them. It’s insidious.”

Don’t be so conservative. Studies show women are more conservative investors than men, when in reality they need to be more aggressive. Taking an overly conservative approach increases the chances that inflation will erode your retirement savings. Take the extra time that longevity has given you, and don’t be afraid to invest in growth-oriented stocks. The longer you have to invest, the easier it is to ride the market’s ups and downs.

Since 1925, according to Wachovia, the chances of losing money invested for any one year has been 28%. But hold an investment for five years, and the chance you will lose money falls to 10%. More than 10 years, and it’s 3%. Over 20 years: 0%.

Get yourself a financial adviser. You don’t have to navigate your financial course alone. A good adviser will do more than just tell you how to invest; he or she will sit down with you and discuss your life’s goals and come up with a clear, sound strategy for achieving them. And, just as importantly, they can help take the fear out of finances.

A little bit can add up. You don’t have to have a lot of money to invest. Some mutual funds have minimum investments of as little as $50 a month. Setting aside even a small amount for your retirement on a regular basis will pay off in the future.

Stuff your 401(k). If your employer offers a retirement plan, participate as much as you can. If your company matches, try to at least invest as much as the matching limit to get the most “free money” from your boss.

Think of yourself first. Almost any parent’s instinct is to think of their children’s well-being ahead of their own. While this is laudable, it doesn’t apply to saving for retirement; you should do this before you save for your kids’ education. There are all kinds of ways to borrow money to pay for school, but no one will lend you money for your retirement.

Canceled Debt – Is it Taxable?

Q:  My house went into foreclosure a while ago and the bank notified me that the transaction closed.  I then received a Form 1099-C, but am not sure what this means.  Will I have to pay taxes on the amount that was forgiven?

 A:  Very good question and the short answer is that it depends.  Generally speaking, when a debt that you are liable for is canceled, forgiven, or discharged, you will receive a Form 1099-C (Cancellation of Debt) and must include the canceled amount in gross income.  If, however, the creditor is continuing to try to collect the debt, or you meet an exclusion or exception, then you do not have cancellation of debt income.

Cancellation of debt, whether it be partially or totally, that is secured by property may occur because of a foreclosure, a repossession, a voluntary return of the property to the lender, abandonment of the property, or a principal residence loan modification. You must report any taxable amount of a cancelled debt for which you are personally liable, as ordinary income from the cancellation of debt.  This is done via your Form 1040 and must be reported whether or not you receive a Form 1099-C.  But what about those exclusions and exceptions mentioned above?

Canceled Debt that meets the requirements for any of the following exceptions or exclusions are not considered taxable:

Exceptions

  • Amounts specifically excluded from income by law such as gifts or bequests
  • Cancellation of certain qualified student loans
  • Canceled debt that if paid by a cash basis taxpayer is otherwise deductible
  • A qualified purchase price reduction given by a seller

 Exclusions

  • Cancellation of qualified principal residence indebtedness
  • Debt canceled in a Title 11 bankruptcy case
  • Debt canceled during insolvency
  • Cancellation of qualified farm indebtedness
  • Cancellation of qualified real property business indebtedness

The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence.  This exclusion for “qualified principal residence indebtedness,” provides canceled debt tax relief for debt forgiven during calendar years 2007 through 2012.  It allows taxpayers to exclude up to $2,000,000 ($1,000,000 if married filing separately) of “qualified principal residence indebtedness” which is: 

  1. Any mortgage taken out to buy, build or substantially improve your main home
  2. Is secured by your main home
  3. Any debt secured by your main home that you took out to buy, build or substantially improve your main home (but only up to the amount of the old mortgage principal just before refinancing).

Generally, if you exclude canceled debt from income under one of the exclusions listed above, you must also reduce your tax attributes in the asset by the amount excluded. You must file Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness) to report the exclusion and the corresponding reduction of certain tax attributes.

Point of Caution 

If your debt is secured by property AND that property is taken by the lender in full or partial satisfaction of your debt, you will be treated as having sold that property.  This may result in a reportable gain or loss. The gain or loss on such a “deemed sale” of your property is a separate issue from whether any canceled debt also associated with that same property is includable in gross income.  Make sure to discuss this potential transaction with your tax professional or see IRS Publication 544 (Sales and Other Dispositions of Assets), for detailed information on reporting the gain or loss.

What It Means To Be A Father

It’s been a while since I’ve penned a note about myself, but with today being Father’s Day, I figured today would be a good time.  On my walk back to my car from a client call this morning, I had some time to think about what it means to be a father.  I’m very fortunate to have this job in addition to the other roles I play in life.  It’s one of the most rewarding, challenging, nerve wracking yet joyful jobs that I’ve ever had.  This got me to thinking about its importance.

My sister and I were fortunate enough to have both our parents in our lives.  My dad was a hard working guy who always made sure we had a roof over our head and my mom made sure we always had clothes on our back.  Together they kept us in line, encouraged us, shuttled us to and from games and held us accountable for everything we did.  During my high school years, it was this last point that made the world as I knew it pretty difficult.

My parents were old school.  You know, the kind that made you come home when the street lights came on.  The kind that wouldn’t let you go outside unless you showed them that your homework was done.  The kind that didn’t give you an allowance, but taught you the importance of earning it.  To say they were strict would probably be an accurate observation!  But to say that they didn’t care would be an injustice.

During high school, all I wanted to do was escape to college.  I remember applying to the University of Miami just for the sole purpose of getting as far away from Chicago as I possibly could.  Too bad (and thankfully) it was way too expensive for me to attend despite being accepted.  But in all honesty, I really didn’t want to be close to home because I wanted to be “free” of all the rules and regulations that I felt had stifled me.

Well, many years later and having started a family of my own, I now “truly” understand what my parents (specifically my father) were doing.  They were doing their job!  The role of a parent in the wild is to protect their young until they can fend for themselves.  Their job isn’t to be liked all the time.  Their job isn’t to tell you what you want to hear.  Their job is to teach you what they know so that you don’t get yourself into trouble.  And if you do find yourself in a spot of bother?  Hopefully they’ve given you some tools so you can try and get yourself out of that jam.

I’d like to think that in the years following my return from college, my father and I have grown closer.  I don’t necessarily see him as the guy who told me what to do, but more so as they guy who tried to advise me.  I don’t see him as the man who tried to rule my life, but as the man who tried to guide me in the right direction.  And now he gets another job – that of Papa or the guy whom my little one loves to hang out with when we go and visit their home in Michigan.

So today, I’d like to say “thank you” to the man who was always there in my life.  The guy who always told me he loved me and that he thought I was the greatest guy in the world.  To the man who taught me through his actions that life is hard, but you never quit no matter how high the chips are stacked against you.  To the guy who taught me that all a man has is his word and his reputation.  To the guy who always supported me, stood by my side and gave me a role model to try to emulate.

I’ve always tried to do what my dad said because in the end, I really looked up to him.  For every time he said “you make me proud to have a son like you” I wish I could have responded “but I’m more proud to have a father like you.”  Now as I try to raise my own child up into a responsible member of society, I can only hope that I do half as good a job as he did.  Happy Father’s Day Dad!

Small Business Marketing 101

While we are a financial services firm, we often times run across business topics that we feel are noteworthy.  So while we are not marketing experts, we’ve seen many companies make similar mistakes when it comes to their marketing.  Now we’re not talking about logo design, twitter handles or even ill timed marketing campaigns.  We’re talking about the fundamentals – the basics that often get overlooked or simply reprioritized to the bottom of the list.  Well, this post will look at a few things that every new or would-be business owner should contemplate before they take that leap.

Nothing happens without sales.  If this is the first rule of business then the second is this – if you want to go out of business, stop marketing.    For those who’ve worked in Corporate America, it may now resonate with you why the Sales and Marketing functions typically have the biggest budgets.   We know that it’s not the aim of a new business owner to shutter its doors, but unintentionally this is the result of the marketing approach new owners take.  You see, marketing is an essential and integral part of business success.  Unfortunately, most owners don’t adequately fund or plan their marketing and as a result, it is done as an afterthought.  Therefore, set your enterprise up for success and make marketing a priority.

Quality, Honesty and Integrity.  These three items are the cornerstones of all marketing.  Firstly, you must sell a quality product or service that will inspire customers to not only purchase it again, but spread the word to their friends.  Concurrently, the business must ensure that its marketing is built on honesty and integrity.  Companies built to last have a strong ethical foundation and honest marketing practices.  Thus, if you market in this manner and sell a quality product, you’ve laid the ground work to capture the Holy Grail – an impeccable reputation!

Marketing is a philosophy.  Unfortunately, too many individuals view marketing as slick campaigns, buzzwords, advertising and the like.  The reality is marketing is a philosophy and the above items are only components to execute that philosophy.  Marketing is everything a company is and does.  A company’s ethics, culture, work environment, hiring practices, attention to quality and customer service all affect and are affected by marketing.  Some companies spend tons of money on and attention to logos and advertising, ignoring the damage done by unethical behavior.  The point?  It’s important to realize just how integrated marketing really is or you’ll find yourself wasting marketing dollars while other things derail your efforts.

Build it and they will come. The simple step of moving out of your home will not solely result in increased sales.  The only thing you’ve done is made it easier for those selling their products and services to find you!  In order to generate “street traffic” you have to initiate some form of marketing so customers know why they should stop and visit YOU vs. your competition.  “But my signage tells what I offer so I’ll be fine.”  Really?  Try this exercise the next time you’re out.  Pick an obscure product (bike tubes, hammer, flyer printing, bug spray) and then visit an area you think will have a store that will offer it.  Don’t look up the store on the internet, we want you to drive/bike/walk around looking at signage and see how easy it is to find.  The point is this; even with a highly visible location it’s EXTREMELY hard for potential customers to “see” you.  The only way to ensure that the do, is to market to them.

Relationships matter.  Most people don’t think of this when they do their marketing.  However, the reality is this; marketing intersects in many different ways with relationships.  People do business with those that they know, like and trust.  Do you go back to the store with the clerk with the nasty demeanor?  Or how about that restaurant with the hostess who was indifferent when you arrived?  Your ability to strengthen human relationships through marketing will determine the success of your business.  However, befriending every person within 10 miles of your business is not the answer.  What you have to do is figure a way to infuse paying attention to your customers and what matters to them with the marketing tactics your organization employs.  If you can do that, you’ll create a following of customers who’ll want to do business with you time and time again.  And that my friend is what we all want!