New Year

Ah, another year has passed.  I hope 2006 turns out to be as good as 2005.  There is much to be thankful for as we all ring in a New Year.  I pray that you and your loved ones have a healthy new year.  As I grow older, I'm always thankful my health is somewhat intact.  Aside from the daily grind of dealing with my back flare-ups, I think I'm doing ok with my health.  Hopefully, the trips to the St. Francis HealthZone will pay dividends as my body pushes to age 40 in 2006.

I think my Company Health Insurance is what I'm most thankful for.  There is a peace of mind knowing that my current employment situation affords me the ability to not worry too much about health care costs.  Unfortunately, a great majority of people around the world don't have that luxury.  That bothers me a lot.  I also frequently worry about later years when I may not be so gainfully employed and before I reach age 65 when Medicare kicks in.  Dealing with medical costs without insurance will quickly devastate a family with health issues.

I'm stating the obvious here, but it's worth stating again that this nation's health insurance situation must be addressed sooner rather than later.

Happy New Year!!!

New Year. New Look.

I thought I'd take the opportunity to spruce the blog up a little bit.  I hope you like the new look and feel even though it does not deviate far from the old design.

Really Simple Syndication

I have added an RSS (Really Simple Syndication) feed link at the top of the page for those who use them.  Here are some other helpful feeds from the SmartMoney.com website.  For those not familiar with RSS, the SmartMoney.com link has a brief explanation.

Natural Disasters

2005 presented the world with $200+ billion in losses due to natural disasters.  It's estimated that only $70 billion of those losses are insured.

Sites that may be of interest...

Earth Observatory

UN Office for the Coordination of Humanitarian Affairs

International Strategy for Disaster Reduction

Chronology - 2005 Natural Disasters

Reversion To The Mean

This is a great write-up from Vanguard that re-inforces my thoughts back on December 12th.  There is a math term known as reversion to the mean that is commonly applied to investing.  Stocks and funds will rise to high points and sink to low levels, but over the long-haul these investments will always revert back to the mean.  Asset Allocation, diversification and investing for the long-term are tried and true methods that remove short-term spikes from the investing equation.

From the Vanguard article, I found these charts very timely in light of some of my recent thoughts within this blog...

Baby Shower And Nursery

The nursery is coming right along.  We finished the paint work and completed assembly of all the furniture.  We have several other pieces ( rug, wall decorations, other knick-knacks ) scheduled for delivery this week.  We're very near to being ready for our little girl.



Here are a few shots from the shower in Austin as well.  My sister, Colleen, was kind enough to send these to us ...

Tax Law Changes For 2005

As the year winds down, knowing the latest Tax Law Changes for 2005 could prove useful.

Some to note...

You are eligible to claim Earned Income Credit if married and household income is below $37,263

The 50% reduction of max electric vehicle credit has been eliminated

Exemption amounts increased from $3,100 to $3,200

Standard deduction amounts have increased

Business mileage reimbursement rates up to 40.5 cents/mile ( 48.5 cents after September 1)

What you'll owe in taxes this year ( based on Taxable Income Amount )...

All Tax Rate Schedules

The Stock Market Game

With the weather turning "frightful" here in Tulsa for the winter, Dayna and I have been having fun playing board games together.  She gave me a couple "early" Christmas gifts so we could both enjoy them during the holidays.

As a child, Dayna's step dad, Cecil, had several board games that her family enjoyed together.  One of these, The Stock Market Game ,was of particular interest to me ( for obvious reasons ).  The game was originally created in 1963 and has become quite a collector's item.  Dayna was able to find one on eBay and we received it in the mail this weekend.  We've had fun playing it today.

The nursery is also coming together quite nicely.  We've painted the walls and assembled all three new pieces of furniture ( crib, changing table and dresser drawers ).  We'll get some additional pictures posted on the site shortly.

"Hot Stock" Talk

Obviously, the market fluctuates a lot.  I'm always working hard to ensure I don't get caught up in the "hot stock" or "hot fund" talk.  I'm always reminding myself that Asset Allocation is the key to sound returns over the long-haul, not market timing.  I decided to go back to 2002 and track my return at the end of each month through to the present.  From the chart below, one can see that things have been good lately.  But, the main reason I'm achieving such good results now is because I was buying up funds when they were really low back in 2001 and 2002.

There will be times that my results dip way down, but over the long-term, my goal is to achieve a 10% return on my investments.  As of today, I'm sitting at a return of 20.89%.  Very positive right now, but the real test will be how I handle a valley.  We should all consider low times as an opportunity for buying more.  With things good right now, I think I'll scale back on putting cash into equities right now.  2006 will be an opportunity to stockpile cash such that I'll have investable liquid assets for pumping into the stock market when it inevitably goes down in the future.

Net Worth

I stumbled across this  Net Worth website today.  I always like to reiterate that an individual's personal wealth is not defined by their salary level, but by their Net Worth.  There are lots of folks in the world making $30,000 a year with high Net Worth because they have been very disciplined in their spending habits.  Folks with a solid Net worth for their age are not interested in the latest technology gadgets, nor the most expensive and popular vehicles, nor are they interested in keeping up with the Jones'.  They are normal folks with average jobs that find value in life through their relationships with people and not through the number of toys they have.

The links below are samplings of the Net Worth of individuals who have entered their data by...

Age

Income

Occupation

Education

State

On a completely different topic, here is first look at progress on the baby's room.  We chose a color called Pastel Sage and the bedding and accessories are all lavendar and sage with a butterfly theme.

Gold Prices

Back on October 16th I talked about a drop in stock values over the course of about two weeks.  In just a couple months, those losses have been re-gained and then some.  Patience is the key and avoiding emotional decisions to sell while values are low will pay dividends over the long haul.

A perfect example of how people get swept up in the "buy high, sell low" pitfall is by too closely watching/listening to foolish prognosticators.  I've mentioned this bonehead before, but it's worth bringing up again to point out the trap that folks can fall into.  His current home page states how the "go to" sectors right now are energy and gold.  Well, these two sectors are at their highest point in years.  Why would one buy these right now?  The window of opportunity has come and gone at this point.  People will hear how great the sector is right now and pour their money into them because they get emotionally caught up in the current media craze only to find out later that it's way too late to make any money in these sectors at this time.

Gold prices are almost double what they were in 2001.  But, very much like the peak of the internet dot.com mania, people are pumping money into gold because it's the "hot" media ticket.  Be careful.

Likewise, take a look at the major energy stocks over the past five years...

Exxon/Mobil

Chevron

British Petroleum

January 2003 was the time to buy energy stocks, not now.  January 2001 was the time to buy gold, not now.

Soul of Capitalism

There are some profound stats in Bogle's Soul of Capitalism book.  Here are a few of his findings...

The wealthiest 1% of Americans owned 18% of the nations wealth in the 1970s. By the year 2000, the wealthiest 1% of Americans owned 40% of the nations wealth.

In 1980, the compensation of the average CEO was 42 times that of the average worker. Today, the ratio has soared to 280 times that of the average worker. From 1980 to 2004, CEO compensation has increased 1,147% while the average worker’s increase has been 136%.

One-fifth of the annual gross returns generated for investors in the financial markets during the past two decades has been siphoned off by fund managers through fund expenses.

Longevity

Good article on longevity.  This is something we all probably do not spend enough time contemplating.  With today's advances in medicine, many of us will live longer then ever.  It's daunting to consider the possibility of funding a retirement of 30+ years.  Many folks are considering work beyond their 60s and 70s just to ensure their retirement dollars last longer.

Since we're on the topic of Vanguard ( i.e. the author of the article I just mentioned ), I highly recommend John Bogle's book The Battle for the Soul of Capitalism.  Many of you know that I rarely am comfortable with recommending any book.  There are so few good ones out there that I'm almost always disappointed when reading a new book.  However, in this case, I'm very comfortable with recommending anything written by John Bogle.  John Bogle is a hero of mine and I think you will find his integrity unmatched in the investment community.

It's A Girl!

Dayna and I had our 20 week ultra-sound today.  We arrived at the St. Francis Imaging Center after Dayna consumed 32 ounces of water.  The Imaging Center folks asked that Dayna's bladder be full for the ultra-sound.

Unfortunately, we waited and waited and waited as person after person seemed to be serviced promptly except for us.  After about 25 minutes I got fed up and asked the receptionist what the story was.  Our information seemed to be mysteriously "lost" due to the "new computer system".

Well, due to the volume of water in Dayna's system, the poor girl was about to blow an o-ring.  I obviously insisted that the technicians see Dayna right away and fortunately they rushed us into the examining room.

We were so thankful as we began to see the images of a perfectly healthy baby girl squirming around inside Dayna.  The baby was just beautiful.  She even yawned a couple times for us.

We're looking forward to the last few months of the pregancy as the baby develops more each day.

Average Rate of Return

I took the opportunity this weekend to buy the new Quicken 2006.  I've been searching for a clear, concise definition of Average Rate of Return (IRR).  It's a very frequent measure of performance, but the formula is a bit involved.  Below is Quicken's definition.  It's pretty good...

Lance Armstrong Foundation

Many of you know that I am from Austin, but I most certainly am NOT a Lance Armstrong fan.  As a young teen, I competed in many individual events ( mostly running and cycling ).  Armstrong and myself are fairly close in age and we often competed in many of the same events in and around Austin.  Even back then, he had a reputation as a competitor and certainly did win most of these events for his age group.  But, the guy is a real snake ( don't even get me started on what he did to his wife and kids in order to be with Sheryl Crow ).

Anyway, aside from the fact that he is a real loser of a person, I would like to shed some light on his glorious "Live Strong" campaign and his efforts to parlay his "humanitarian" efforts into a future political career.

Fortunately, in this country, our government attempts to hold organizations financially accountable.  Annual financial reports are required by all non-profit organizations and must be made public.  Fortunately, for organizations, most people are put to sleep when reading such excruciatingly boring material.  Well, I'm one of the weird ones.  I actually find it quite interesting and revealing when reading these documents.  If you look hard enough, you will find the true motives of many of these Hollywood-esque "saints".

The primary figure that everyone should consider when looking at these Financial Reports is how much is spent on administration costs.

Well, in the case of the esteemed "Lance Armstrong Foundation", a solid 54% goes toward administrative costs ( see page 23 in the document ).  That's a lot of big cushy executive butts sitting in big leather chairs that should be going toward cancer research.  The foundation has spent almost $3,000,000 alone on wrist bands to hand out to support Armstrong's future political aspirations.

These so-called "caring" organizations do more to line their own pockets than to support the cause they use to promote their own agendas.  If you have not noticed, this is one of my very big pet peeves.

Car Donations

Dayna and I are having a bit of difficulty selling her Mustang.  It's a great car with very low mileage.  We've had it listed in Auto Trader for several weeks and have lowered the price once.  With this challenge, I decided to investigate the tax code for donating a car to charity.  I was curious to know how much we may save on taxes if we decided to give the car to a good cause.

This is what I found...

A Donor's Guide to Car Donations

I plugged the deduction into last year's tax return to estimate how much we may save in taxes in 2005.  If I estimate the fair market value of the car to be $7000, then we'd save about $2000 on our 2005 tax return.  Not sure it's worth it to donate.  We may just wait it out and keep lowering the price until we get a buyer.

Maximum 401K Contribution Increase

In 2006, the maximum 401K contribution will increase to $15,000 from $14,000.  The question I must answer this next year is "am I really benefiting from the maximum pre-tax contribution?".  With the baby coming next year, we've decided that Dayna will stay at home to be with the baby.  With one income, a small annual 401K contribution and our mortgage interest and property tax deductions, our income will put us in the 15% tax bracket, as opposed to our current 25% marginal tax rate.

With that being said, it is very likely that our current tax rate of 15% will be the same rate we encounter during our retirement years.  So, the question is, do we pay the tax now or during retirement?  Obviously, I want to continue to make the minimum 401K contribution that allows us to receive our 2% employer match.  That is a no brainer, but do I want more flexibility with the investable cash I have on hand?

In other words, do I want to pump the money into a 401K plan where it's unreachable until 59.5 years of age?  Or, do I want the ability to invest the money in an after-tax investment now such that I forego paying taxes on the money during retirement?  Another thing to consider is that the current tax on capital gains is also 15%.  So, any money I make in my after-tax investments will also only be taxed at 15%.  There is uncertainty as to whether or not the capital gains tax rate will remain at 15% in the future.

Once again, these are all questions that require addressing during the year-end financial checkup.

Nothing to say today.

Paris Riots

Good article on roots of Paris riots.  You know, I try not to be a controversial person, but I have found myself sympathizing somewhat with the plight of these young men.  It's events like these that awaken the world to the constant attempt by power hungry people to suppress the less fortunate.  Sometimes it takes harsh actions to bring attention to the "ugly" things of this world.  Left unchecked, human beings will make every attempt to force their superiority on the more vulnerable of our societies.

How do you think the American male population of 25 year olds would respond to 23% unemployment within their age bracket?  I'm sure their response would be similar if they did not have the luxury of loafing on their parent's sofa playing video games and eating all the food in the fridge they didn't pay for.

Housing Bubble

The housing market continues its upward slope.  In many parts of the country, homes have appreciated over 50% in the last five years.  It's only now that economists are predicting only about a 4% increase next year.  I think the Fed is also doing some things ( i.e. slowly increasing interest rates ) to help minimize the possibility of a housing bubble.  Hopefully, we won't hear a pop, but only a gradual return to more realistic growth figures.  A housing bubble burst would have a significant impact on the entire country, not just certain regions.  

What $300,000 will buy today
What $650,000 will buy today

The Wealth Test

I heard a story on NPR a couple days about a couple guys in Estonia who hacked into the economics news organization Business Wire.  Apparantly, these clever gents were able to access the economic news headlines the day before the information was to be made public.  They were then able to make keys trades based on the information during after hours trading.  It turns out these guys also worked for one of the largest brokerage houses in Estonia.  This is one of the more subtle, yet creative forms of hacking I've heard about.

On a different note, I read today about something called the "Wealth Test".  I don't like to read any real meaning into these things since they are simply subjective barometers.  These things can often discourage people or give people a false sense of security.  So, take this with a grain of salt.  Apparantly, the Wealth Test is supposed to provide you with a general idea as to what your Net Worth should be at a certain age.

The Wealth Test is...Your age multiplied by your current salary divided by ten.  So, a 35 year old making $50,000/year should (in theory) have a Net Worth of $175,000.  Chances are pretty good you won't pass the Wealth Test ( I certainly didn't ), but if you did then that is awesome and you're well on your way to meeting all your financial goals.

Vegas

Hehehe...I forgot about these pictures from Vegas last June.  Dayna reminded me we had these and I got a kick out of looking at them again.

This is Dayna's dad, brother Darrell and Christy (Darrell's girlfriend) in the Ghost Bar at the top of the Palms hotel.  A great time was had by all.

Here I am trying to look cool in front of Doug's new Corvette.  Doug took me for a little ride and showed me how many ponies this sweet ride has.  This is just one of his stable of impressive vehicles he has acquired over the years.  I'm still waiting for him to surprise me with a 1970 Pontiac GTO as a Christmas gift.

    

Creative ways to determine a return...

You know, regardless of whether or not the equities market is doing well or going bad, people seem to find the most creative ways to determine their "return".  We all hear the ridiculous claims made by people regarding their uncanny ability to always have a higher return than the average guy off the street.  Calculating return comes in all shapes and colors.  People typically gravitate to whatever makes them look best ( and we all know very well that you can make the numbers mean just about anything your little heart wants ).

However, being the financially conservative person I am ( while being socially moderate/liberal ), I tend to lean toward the more realistic determination of return.  I like to look at two things...

First, simply return.  Just take the current market value for all your investments and divide it by total dollars invested ( if your investment portfolio is current $115,000, but you have only invested $100,000, then your return is (115,000/100,000)-1 = .15 or 15% ).  This is obviously oversimplified and does not take into account a lot of factors, but provides general idea of how you are doing.

Another thing I like to do is ( and this one usually makes me feel real good ) is to factor out the 401K employER contributions, as well as, dividends and increase in market share.  In other words...

Say you only outlayed $50,000 of your own money, but you received $5000 match from employer, your market value increased by $10,000 and you received $2,000 in dividends.  So, your current portfolio value is $67,000 (50000+5000+10000+2000).  In this case, I would say my real return is...(67000/50000)-1 = 34%, as opposed to...(57000/50000)-1 = 14%.  My reasoning here is that the employer match money and the dividends gained did not come out of my pocket, therefore, should not be part of your "total dollars invested".  The $5000 from your employer and the $2000 from dividends are part of your current total market value, not the amount invested.

Like I said in the beginning, you can slice and dice these numbers until you're blue in the face.  My personal goal in calculating these numbers is simply to see how much more money I have beyond the actual amount invested.

Since my divorce in 2000 ( which certainly did not help my financial situation ), I've been able to achieve a 15.3% return and a real return ( based on my definition above ) of 35.24% since the year 2000 consisting of the following mutual funds...

FDEGX - 43.6%

SGROX - 42.9%

FDIVX - 23.7%

FLPSX - 16.9%

FFFDX - 12.9%

FMCSX - 5.74%

FSPTX - 3.24%

VIGRX - 12.4%

VPCCX - 7.07%

VGSIX - 33.9%

VFINX - 18.4%

The President's Advisory Panel on Federal Tax Reform

Interesting new developments today from The President's Advisory Panel on Federal Tax Reform.  The most intriquing are the changes proposed for  mortgage interest.  The documentation states that Americans currently in a mortgage will not be affected.  However, for those in a high tax bracket and not currently in a mortgage, the affect on them could be significant.  To determine how you might be affected, identify which  tax bracket you are in.

I would tend to agree that the general thinking of most folks today is to stretch themselves to buy as much house as possible.  This allows people to have a maximum mortgage interest deduction each year.  However, under the proposed tax reform changes, mortgage interest deductions will essentially be capped.  Here's an example from the CNN website...

Take a new homeowner who pays $18,000 a year in interest on a $300,000 loan and itemizes his deductions on his federal return.

Under the current system, if he were in the 25 percent tax bracket, he'd reduce his taxable income by $18,000, for tax savings of $4,500 (18,000 x 0.25).

Under the panel's proposal, he'd only save $2,700 (18,000 x 0.15)

That assumes the $300,000 loan doesn't exceed the mortgage-interest cap.

But if he were in the 15 percent tax bracket, he'd see no difference under either scenario.

So, basically, if you are in a tax bracket higher than 15%, the tax savings through your mortgage interest is reduced.

There are a lot of other high-profile changes proposed in the plan.  I would encourage anyone to read the document.

The things I evaluate each year...

Ensure total 401K contributions will not exceed the maximum allowed ($14,000).  On target for $13,700.

Ensure total Roth IRA contributions will not exceed maximum allowed ($4,000).  On target for $4,000.

Estimate Federal and State Income Tax amount due and/or refunded.

Ensure total federal income tax withheld is close to what my total tax liability will for the year.

Estimate next year's taxes and set paycheck withholding amount accordingly (goal is to not receive large refund)

Determine max 401K amount allowed next year and ensure I contribute that amount

Determine max Roth IRA amount allowed next year and ensure I contribute that amount

Examine investment's asset allocation and rebalance as necessary

Investigate amount in Money Market savings and find more aggressive investment location for money for new year

Calculate investment return and compare to the established goal for the year

Determine total dividend amount earned for the year (in both taxable and non-taxable accounts)

Gather appropriate tax documents and prepare for delivery to CPA

Examine expenses for year and establish goals for cutting unnecessary costs

Determine if Net Worth goal was met for this year

Establish Net Worth goal for next year

Determine if savings goal was met for this year

Establish new savings goal for next year

Annual Karas Financial Checkup

The annual Karas Financial Checkup is fast approaching.  Around this time of year I begin assessing the positive and negative aspects of our financial decisions of the past year and start thinking about goals for the upcoming year.

One of the many factors I look at is our current asset allocation and how it compares to our target asset allocation.  So far this year I have nailed it.  My goal over the very long term is to achieve 10% return.  If, at the end of the year, I find that a certain asset class ( i.e. large-cap stocks ) is outside my projected percentage, then I will begin to contribute more or less money to that particular asset class.

Vanguard's Six Rules of Successful Investing

This guy's Personal Finance Blog  doesn't leave much to the imagination.  He pretty much opens his entire financial life to the world.  Apparantly, he wants to retire at 36 with $1,000,000.  Well, fortunately for him, he plans to move back to China to retire.  It would be a bit more difficult to retire in America at 36 years old and then expect to live another 50 years in retirement on only $1,000,000.  Although I wouldn't be bonehead enough to put every freakin detail of my financial life out on the internet, you have to somewhat admire the guy for his sense of discipline and desire to meet a noble goal.  It's always helpful to observe how other folks go about meeting their financial objectives.

Don't be fooled by this bonehead.  Frequent stock trading is one of the worst things you can do.  This guy fails to mention the thousands of dollars he is paying in transaction fees.  Why do you think he asks for donations from visitors to his site simply to view his stock purchases everyday?  What an idiot.  I can almost assure you this is one of those 28 years wussies who has never had to work a day in his life.  Mommy and Daddy have bankrolled this moron since he turned 18.  Our society is so deadset these days on the short-term that it's hurting everyone over the long-haul.  If one is serious about making sound investment decisions and are disciplined enough to keep the long-term in mind, then an organization like Vanguard is the way to go.  This document is an excellent starting point.

Vanguard's Six Rules of Successful Investing

Live Beneath Your Means

Diversify

Keep Costs Down

Remember Taxes

Buy and Hold for the Longrun

Know Yourself

New Bankruptcy Law

The new bankruptcy law went into effect on October 17th.  It's my understanding that the personal bankruptcy filings just prior to the 17th here in Tulsa skyrocketed.  Folks are trying to get in under the wire before the terms of filing personal bankruptcy change dramatically.  I think these changes are long overdue.  Even though the law previous to the 17th would discourage people from buying extravagant items just prior to filing bankruptcy, many people with high incomes were abusing the bankruptcy law.  The new law is now actually looking at the individual's monthly income and running it through a "means" test in order to determine whether or not the person can file Chapter 7.

Bank Of America - "Keep The Change"

Not sure if you have seen this before, but Bank of America has instituted a program called "Keep the Change" that contributes money to the customer's savings account whenever they make a purchase using their debit card.  Basically, if a consumer makes a purchase using their debit card, Bank of America will round up the cost of the item and contribute the difference between the real cost and the "rounded" amount to a savings account.  So, if someone makes a purchase for $7.50, then Bank of America will round the purchase price up to $8.00 and contribute .50 cents to your savings account.  Hmmm, sounds like a pretty good deal, huh.

This new scheme by Bank of America is underhanded for two primary reasons...(1) in some cases, consumers are already paying a fee for each transaction made on their debit card and (2) merchants are assuming extra costs since credit card companies impose a fee upon the merchants for each transaction.  Bank of America is simply attempting to increase usage of debit cards so they can collect more from consumers and merchants.

A Couple Of New Books

I've started a couple of new books this week.  As you've probably noticed, I'm a bit of an antiquity buff.  In my view, there is no more interesting period of history then the time of the great Roman Empire.  I've spent quite a bit of time reading bits and pieces of Roman culture, but I've never taken the time to delve into the definitive volumes on Roman History - Edward Gibbon's Decline and Fall of the Roman Empire.  The book is a bit daunting, but I'm determined to make a run at the first two volumes.

Dayna and I have really been enjoying the new series Rome on HBO.  I'm not sure how historically accurate the program is, but it's darn entertaining.  You should check it out if you are not offended by violence and strong sexual content.

Investing For The Long-Term

This is a bit off the topic at hand, but worth mentioning to remind ourselves that we are investing for the long-term.  My investment accounts dropped about $6,000 in value over the last two weeks.  The last several months have been very good, but positive runs don't last.  We must take advantage of the "low" times by buying more.  The longer your investing time horizon, the greater chance you have to achieve good gains.  It's not unrealistic to target a 10% return on your investments over the long-haul.

Below is an example of the highs and lows for stock equities over different periods of time...

One Year Period - Low = -35%, High = +54%

Five Year Period - Low = -7.5%, High = +28.6%

Ten Year Period - Low = +1.2%, High = +20.1%

Fifteen Year Period - Low = +4.3%, High = +18.9%

Twenty Year Period - Low = +6.5%, High = +17.9%

Continue to Dollar Cost Average over the long-term and this will allow you to buy more shares when the cost falls during the low times.  Another viable option to consider is Value Averaging.

Making Money Work for You

I want to take the opportunity to begin next week's topic today.  I've entitled this week's discussion "Making Money Work for You".  I think the biggest hurdle people must overcome is to get themselves in a position where their money is working for them and not against them.  As one simple example, it's difficult to increase your Net Worth when one is paying more in bank service fees and credit card interest charges then what you are making in investment interest and dividends.

There are many great resources related to money savings tips.  I'll share some of these resources this week and discuss how these ideas can be used to help utilize the saved money for advancing your Net Worth.  One helpful resource that I have found useful is BCS Alliance.  Scroll down a bit and notice the Debt Management section on the BCS website. You'll find some good information regarding saving money in many areas of your life.  The ultimate goal is to put this "saved" money to use so that it can begin making money for you.

There are obviously many ways to put free'd up money to work for you, but, perhaps the most significant ways revolve around the kicking of a bad habit.  Not only will one improve their health, but will also have the gift of a couple thousand extra dollars each year for other purposes.  Cigarettes and Starbucks habits are the two big ones that come to mind.  At $3+ a pack, a person could save about $1,200/year if they stopped smoking one pack a day.  Discontinuing daily Starbucks could put another $900/year in your pocket.  That's two grand that can be invested a year.  With the power of compound interest, $2,000/yr will add up nicely.

These are just a couple examples.  We all have our own way of cutting expenses and saving for our future.

Seattle Rocks

Seattle was very cool.  Check out our pics.  The highlight of our trip was definitely the Hot Shop inside the Museum of Glass in Tacoma, Washington.  The museum itself was nothing to write home about, but the Hot Shop and Dale Chihuly exhibits were very worthwhile.  Danny Perkins was the guest artist while Dayna and I were visiting the Hot Shop.  We had the opportunity to see him work the glass from the very beginning while it was molten glass.  The Music Experience  was overpriced and just really not that great.  It was interesting to see the Bob Dylan and Jimmy Hendricks exhibits, but other than that, the only other worthwhile thing inside was the hands on musical instruments area where one could learn to play different instruments.  Seattle has some of the most fantastic restaurants around.  We enjoyed several different places, but I would highly recommend ... Saltys  , Icon Grill  and Trattoria Mitchellis.  We had a great time.  We kept things pretty low key since we were looking for a nice, quiet and relaxing few days off.  The Alexis Hotel was ok.  It was a bit pricey for what we got.  We had an interesting first experience with our room, but requested a different one and things progressed nicely after that.  We obviously drank lots of coffee while in town.  As a matter of fact, we saw the very first Starbucks.  That was kind of cool.  We also frequented a unique spice store in the Pike Place Market and bought a couple different types of tea for the upcoming cold fall nights here in Tulsa.  Well, it's back to reality now.  I'm taking off work next week as well so I can get some things done around the house before the baby comes.

Seattle Trip

Dayna and I will be enjoying Seattle this week.  Even though I could update the blog, I think I'll take a break for a few days.  We'll plan to share our Seattle adventures and pictures with you all when we return next week.  Talk to ya soon.

Estate Planning For Pets

Here's something I bet most people don't spend a lot of time thinking about...what will happen to my pet when I die?  Well, fortunately, we live in America and our great capitalistic society allows folks to come up with just about any idea.  Yes, indeed, you can ensure that fluffy gets a good home when you're pushing up daisies -  Estate Planning for Pets.  Actually, it's a pretty good idea to think about stuff like this.  I know I get pretty attached to my pets.  My awesome four year old Golden Retriever, Jackson, was one of the great joys in my life while living in Austin.

Health Care Directive

The Terry Schiavo situation that unfolded before the entire country was a bit uncomfortable for me.  Regardless of your view on the matter, one thing is certain - it's crucial to have a Advance Health Care Directive.  Ideally, this formal document is important to have, however, I have read on several occassions that simply stating your wishes on a sheet of paper and then signing it along with your family member's signatures can often serve adequate.  Anything that clearly states your wishes and is witnessed and signed by loved ones can meet your needs.  But, to be safe, it's really best to use an Advance Health Care Directive form.  The AHCD is VERY specific.  The questions asked range from what types of medications should be given to you in the event you are incapacitated to disconnecting a breathing and/or feeding tube.  You really don't want to leave anything to chance.  Personally, I could not deal with being completely dependent on other people for my existence.  Quality of life means everything to me.  My mobility and mental sharpness are absolutely necessary for me to exist.  Of course, everyone is different and must make these decisions themselves now before an unfortunate accident may occur.  Let's pray our lives do not take a negative turn, but in the event it does, an AHCD will serve one well.  Here is an example AHCD from Arizona.  Each state can be different, so check out your state's website for more information.

Estate Planning

Preparing to die ( i.e. estate planning ) can be expensive.  Speaking of dying, check out my new link to books I'm currently reading.  Anyway, yes, estate planning can be very expensive, but it does not have to be.  Unless you're mega-rich with lots of assets to worry about, most of us now have the luxury of using some great ( and inexpensive ) software packages to assemble all the necessary documents.  Suze Orman has a pretty decent software package.  Yeah, I know, she can be a cheeseball and communicate false information sometimes, but these documents are pretty standard and not even she can mess that up.  The point here is that you don't need to spend a ton of money ( sometimes in the thousands of dollars ) on an attorney to assemble all the essential documents.  Of course, some folks don't want to worry about these documents and will be comfortable shelling out the bucks for an attorney - that's ok too.

In addition to the Living Trust I mentioned yesterday, some things to consider are...

Will

Durable Power of Attorney

Living Will / Advance Directive / Health Care Directive

Name your beneficiaries on your assets

Find the right executor

Keep important info about your assets in a safe deposit box

Communicate your wishes to your family

Just remember that the US Government is more than willing to step in for you if you don't plan accordingly.  For the most part, as long as you establish your beneficiaries on your assets and can avoid probate, then you should be alright.

Estate Tax

Currently, the Federal Government is scheduled to repeal the Estate Tax law in the year 2010.  However, unless Congress acts, the threshold will return to $1 million in the year 2011.  As of today, an individual may leave their heirs $1.5 million without paying Estate Taxes.  This number gradually increases each year until it reaches $3.5 million in 2009.  Wealthy individuals really must look at their options seriously to help their heirs avoid paying 45-50% in taxes when they pass away.  It's important for folks to remember to factor in life insurance policies when determining the total value of assets that may be passed on to an heir.  Life insurance policies can easily push one over the thresholds that are set to determine whether or not your heirs will owe an estate tax.  Obviously, avoiding taxes is one of the primary objectives of Estate Planning.  In the event you find yourself exceeding the $1.5 million threshold this year, you may want to consider giving your children financial gifts now using the money that pushes you over the $1.5 million mark.  Remember, each parent can give each child a gift of $11,000 each year without paying a gift tax.

In addition to avoiding the estate tax, you want to also work to avoid probate.  Your spouse automatically inherits everything that is yours due to the marriage laws in this country ( this is one of the primary benefits that same-sex couples covet about the "official" marriage bond ).  Apart from your spouse, designating your heirs as "beneficiaries" on your major financial assets ( i.e. 401K, bank accounts, etc ) will typically serve adequate to pass along these assets to your children.  However, it's good practice to establish a Living Trust to help avoid probate.

Child Tax Credit

We had wonderful time last night for my birthday.  Once again, I ate entirely too much at the Melting Pot.  For anyone who has not tried it, you should check it out if you have one in your town.  It's a bit on the expensive side, but you do get a lot to eat and the atmosphere is nice too.  Dayna's due date is April 20th ( right around tax time ), so I thought I'd look into how the Child Tax Credit works.  This seems to be a pretty good deal.  Apparantly, one can get a $1000 tax credit for each child if your Adjusted Gross Income (AGI) does not exceed $110,000 when filing jointly.

Early Savings Plans

Tomorrow is my birthday and Dayna is taking me to the Melting Pot restaurant tonight for a nice dinner for two.  I'm very much looking forward to the time alone with her.  Today was a bit stressful.  Of course, you know I'm a pretty big college football fan.  Unfortunately, A&M had to squeak by Baylor today in overtime.  It was not a pretty game and I was frustrated the majority of the time watching it, but at least we got the win in overtime 16-13.  Since this week's theme is "Children's Education", I just wanted to bring up the different types of early savings plans available for parents.  Education Savings Accounts (ESA) is the common term for these funds.  I just briefly want to mention the most common:  Coverdell, 529 Prepaid Tuition and 529 College Savings Plans.  I'll let you know how the Melting Pot goes tomorrow.

Upromise

The Tulsa State Fair started this week.  Going to the fair has been a tradition in Dayna's family for many years.  We pick one night and make sure we eat a large turkey leg, grilled corn and cotton candy.  This year Dayna's friend Julie went with us.  A good time was had by all.  We particularly enjoyed the wine tasting booths.  Hopefully, after my comments in yesterday's blog about reading IRS literature, you don't think I'm a freak.  Yes, I am a bit weird in that I find the information interesting.  There is so much to keep up with regard to financial rules and regulations.  Sometimes it's possible to find some real helpful nuggets of information that can make a difference in one's finances.  Briefly continuing the education funding discussion from yesterday, you might find the website upromise interesting.  Apparently, lots of companies have teamed up with upromise and will throw in money toward your child's education whenever you make a purchase at one of these companies.  There seems to be some pretty big names associated with upromise ( i.e. McDonalds, Coke, Kelloggs ).  This may not necessarily be for everyone, but it seems to be a pretty good concept.

"Employing" Children

Well, since we're on the topic of children, I guess it's never too early to start thinking about college funding, etc.  Of course, it's very clear WHERE this child will be attending school, right?!?!  If he/she would like to remain in good stead with a certain soon-to-be-father, then the choice is easy, correct?!?!  Yeah, yeah, I know, I'm a big talker.  It really does not matter to me.  I just pray for a well-rounded and thoughtful child.  My goal is to just not screw the child up like I have so many of my pets in the past.  Anyway, back to the topic at hand - financing a child's education.  Ideally, I'd like to help the child do that themselves.  I've read some good material from the IRS and other sources regarding "employing" your children.  I call it "employing" children, but in reality you are giving them a gift.  Yet, I think it's important that kids work (i.e. take out the garbage, other household chores ) hard for their "allowance".  As of 2004, the IRS allows EACH parent to give EACH child $11,000/yr without paying a gift tax.  That's $22,000/yr!  Then, you allow the child to contribute to their "401K" plan by having the parents deduct a certain percentage of their allowance for investment purposes.  The great thing is that children under 14 do not pay taxes on the first $800 of investment income in the form of interest and dividends.  Plus, the next $800 is only taxed at 10%.  That allows a child under the age of 14 to have $1600 of investment growth/income a year while paying minimum taxes.  Remember, that's investment INCOME, not the amount they actually put into an investment account.  In other words, if the child invests $8000 in one year and earns 10% ( which would give them $800 in investment income ), then that $800 is tax free money.  This is a good deal since parents are taxed at 15% on capital gains and dividends for their investments.

11 Week Baby Check-Up

Dayna and I had our 11 week baby check-up today. We hoped to hear the baby's heartbeat today. The doctor pulled out her hand held ultra-sound, but was unable to find the baby's heartbeat. It's still very early, but it did make Dayna a bit anxious to not hear the heartbeat. Apparantly, at this age, the doctor is only able to hear the heartbeat about 50% of the time when using the small tool. Dr. Blackstock decided to use the internal ultra-sound device to ensure everything was ok. We're glad she did because we had a chance to see the picture of the baby on the monitor. AMAZING! I have seen these images before, but it set me back slightly when I saw that was OUR baby moving around in there. He/She was absolutely beautiful and quite healthy I must add. We were able to see all the baby's limbs. Apparantly, the baby was so active it made it difficult for the doctor to get the heartbeat using her small tool. Anyway, needless to say, we are pretty darn psyched about this little tike. I've uploaded the ultra-sound pictures under the Baby Karas link on the right. Enjoy!!!

I'll work to keep it fresh...

I've begun pulling together my resources for sharing on this blog. I hope folks find this information as useful as I have. I'll work to keep it fresh. The site is pretty basic at the moment, but it shouldn't be too long before it's spiced up a bit.

The Wonderful World Of Finance

Although it’s no scottkaras.com, I felt a need to resurrect my presence on the web. For now, I’ll hang my Amberskor shingle on this blog. Of course, Amberskor is near and dear to my heart. It was the name of my independent technology consulting firm during the glory days of the dot com era in Austin. Technology remains a significant part of my life and continues to serve as my primary means by which I feed and cloth my family, but I’ve also slowly begun to develop a taste for the wonderful world of finance. My primary desire with this blog is to share helpful thoughts regarding financial matters. It’s more important than ever to take ownership of one’s personal finances as our culture moves more toward personal responsibilty when it comes to our money. Gone are the days when companies “take care of us” ( i.e. pensions, retirement health insurance and often times life-long employment ). My father was fortunate enough to work for IBM for 35 years. In today's economy, it’s very difficult for one to anticipate such job security.